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Corporate Tax for Holding Companies in the UAE | Complete Guide

For a long time, the UAE had a certain reputation: 

 

Low red tape, zero tax in the UAE, and smooth sailing for holding companies.

 

You could set one up, shift your assets in, and enjoy the ride. No audits, no surprises.

 

But things are different now.

 

As of 2025, the UAE now follows global tax standards. Corporate tax is here. Reporting is mandatory. And holding companies? They’re now under tighter scrutiny.

 

That doesn’t mean you’ve lost your edge.

 

Investors are still bullish. ADGM, for example, brought in more than 600 new entities in just Q1 of 2025. Assets under management surged by 33% indicating a clear sign that confidence hasn’t faded.

 

So, what’s the catch?

 

You need to be sharper, know the rules, and structure your business the right way. Whether you’re dealing with income tax in Dubai, setting up a holding company, or preparing your income tax return filing, you need to do it right.

 

That includes knowing how to navigate FTA eServices, submit your tax return in UAE accurately, and stay ahead of any excise tax obligations that might apply to your group.

 

You might also need to consider whether and how the tax return rules impact your cross-border holdings.

 

And if you’re handling VAT? Understanding how to file VAT in the UAE properly is no longer optional.

 

This guide is a no-fluff, straight-talking walkthrough of how corporate tax affects holding companies in the UAE and what you should do about it.

Understanding Holding Companies in the UAE

Let’s start with the basics.

 

A holding company is a legal entity set up to own shares or assets in other companies. It doesn’t get involved in daily operations or trading. Instead, it makes money through things like dividends, capital gains, royalties, or interest from its subsidiaries.

 

The UAE officially defines holding companies under Federal Decree-Law No. 32 of 2021. On top of that, they’re also subject to the Economic Substance Regulations, which means they need to have real decision-making and management inside the country if they want to stay compliant.

 

So why do people set them up?

 

Here’s the short answer: control and protection.

 

Holding companies are often used to:

  • Shield assets from risk

  • Plan around corporate tax and cross-border exposure

  • Manage succession smoothly in family businesses

  • Keep ownership and control consolidated in one place

Whether it’s a group of operating companies or a portfolio of real estate, a holding structure keeps things tidy and strategically smart.

 

Now, where do most people go to set one up?

 

You’ll find holding companies across several well-known UAE jurisdictions: 

 

ADGM, DIFC, JAFZA, and DMCC are among the top choices. Each offers slightly different frameworks, but they all fall under the national tax in the UAE regime now, meaning income tax in Dubai or Abu Dhabi doesn’t vary based on location anymore.

 

Now that we’ve looked at what holding companies are and why they’re used, let’s talk about what’s changed—and why tax planning in the UAE isn’t as hands-off as it used to be.

Overview of UAE Corporate Tax Law

With the rollout of Federal Decree-Law No. 47 of 2022, the UAE has officially entered the era of corporate taxation. The law took effect on June 1, 2023, bringing most businesses—including holding companies—into the tax net for the first time.

 

Under this framework, profits above AED 375,000 are now taxed at a flat 9%. Anything below that stays exempt.

 

This move isn’t just about revenue. It’s designed to:

  • Promote transparency

  • Bring the UAE in line with global tax standards

  • And enforce economic substance requirements across the board

For holding companies, this marks a major shift.

 

Structures that were once low-maintenance now face real scrutiny. Passive income streams like dividends or capital gains might be taxable, depending on how the entity is set up and where the income is coming from.

 

Alongside that, holding companies must:

  • Calculate and pay their tax liabilities accurately

  • Keep up with annual filing obligations via FTA eServices

  • Demonstrate substance under ESR rules

  • And comply with Transfer Pricing (TP) regulations if they’re part of a larger group

In short, what used to be a simple setup now comes with responsibilities—and risks—if mishandled.

Mainland vs Free Zone: How Corporate Tax Applies to Holding Companies

Not all holding companies are taxed the same way in the UAE. Where you set up—mainland or free zone, can make a big difference.

 

Here’s how it breaks down:

Aspect Mainland Holding Companies Free Zone Holding Companies (QFZPs)
Corporate Tax Rate
9% on taxable profits
0% if qualifying as QFZP
Qualifying Income
Dividends, capital gains, interest (exemptions apply)
Typically qualifies as 0% CT if within scope
Substance Requirements
Must meet ESR rules
Must comply with ESR & free zone conditions
Registration & Compliance
Mandatory CT registration and filing
Same

So, What’s a QFZP and Why Does It Matter?

QFZP stands for Qualifying Free Zone Person.

 

It’s a special tax status available to companies based in certain UAE free zones. If your holding company meets the criteria, you could pay 0% corporate tax on specific types of income even after 2023.

 

To understand how this works, think of it as a three-step flow:

1. Are You Eligible?

To qualify as a QFZP, your holding company must:

  • Be established in a designated free zone (like ADGM, DIFC, JAFZA, or DMCC)

  • Maintain adequate substance in the UAE (real operations, not just a PO box)

  • Earn qualifying income

  • Not opt into the regular corporate tax regime

2. What Counts as Exempt Income?

If you meet the criteria, you can benefit from 0% tax on income like:

  • Dividends and capital gains from UAE and foreign subsidiaries

  • Interest and royalties (in some cases)

  • Transactions with other free zone entities (subject to conditions)

But: income earned from the UAE mainland is usually taxed at the standard 9% corporate tax rate.

 3. What Ongoing Conditions Apply?

To keep your QFZP status, you must:

  • File your income tax return filing on time

  • Meet economic substance requirements annually

  • Maintain accurate records

  • Avoid disqualifying activities (like earning too much mainland income)

Participation Exemption and Other Tax Breaks You Should Know

Corporate Tax for Holding Companies in the UAE

Under the UAE’s new corporate tax rules, some types of income are still off the hook. Article 23 of the CT Law, backed by Ministerial Decision No. 116 of 2023, sets out clear exemptions, many of which directly benefit holding companies. These can lower your tax bill or, in some cases, eliminate it entirely.

Dividend Income Exemptions

  • Dividends from UAE companies are fully exempt from corporate tax. No conditions apply.

  • Dividends from foreign companies can also be exempt, but only if your holding company:

    • Owns at least 5% of the foreign entity’s shares

    • Has held those shares for at least 12 months

    • Can prove that the foreign entity is subject to a corporate income tax (or something similar) in its home country

Capital Gains Exemptions

Capital gains from selling shares in a subsidiary may also be exempt from tax in UAE as long as the same 5% ownership, 12-month holding period, and subject-to-tax conditions are met.

Real Estate Income

Income from real estate located in the UAE is generally taxable, even for holding companies. However, there are exceptions. If the property is held through a Qualifying Free Zone Person (QFZP) structure and certain conditions are met, the income may still qualify for exemption.

Real-Life Example

Consider a free zone holding company that earns:

  • AED 1 million in dividends from a mainland UAE subsidiary

  • AED 500,000 in capital gains from selling shares in a foreign subsidiary

Because the company owns at least 5% of each, held the shares for more than 12 months, and meets the AED 4 million acquisition cost and asset test requirements, it qualifies for the participation exemption. That means no corporate tax is due on either amount.

 

Understanding these exemptions can significantly reduce your effective tax rate. For holding companies, it could be the difference between paying tax—or not at all.

Tax Transparency for Family Foundation-Owned Holding Companies

Corporate Tax for Holding Companies in the UAE

As of June 2025, the UAE has introduced a new tool for family offices and private wealth structures: the Tax Transparency Election.

 

This mechanism allows qualifying family foundations to elect for tax transparency, meaning the income earned by their holding structures can be passed directly to beneficiaries without triggering corporate tax at the entity level.

 

But this only applies if certain conditions are met. The foundation must qualify under UAE law, and the beneficiaries must be clearly identified and taxable on their share of the income.

 

Why does this matter?

 

For wealthy families, this election opens up new possibilities around:

  • Succession planning

  • Asset protection

  • International tax compliance

  • Long-term wealth preservation

It simplifies things by eliminating one layer of taxation while still keeping the structure legally sound and globally acceptable.

Real-Life Example

Take a UAE-based family office. It uses a family foundation to control three SPVs, all registered in ADGM. When the foundation elects tax transparency, income from the SPVs flows straight to the named heirs. No corporate tax is applied at the entity level, and the beneficiaries report their share of the income individually.

 

For high-net-worth families managing cross-border assets, this new option adds flexibility—without compromising on control or compliance.

Pillar Two: Why Global Tax Changes Could Hit Your UAE Holding Company

There’s a big shift coming. Starting in 2025, international tax rules are getting tougher and your UAE holding company might feel it.

 

The new framework, called Pillar Two, is part of a global effort led by the OECD. In simple terms? If you’re part of a large multinational group, you’ll need to pay at least 15% tax, no matter where you do business. Low-tax hubs like the UAE won’t shield you anymore—not fully, at least.

 

Think your free zone setup protects you? Think again.

What’s Pillar Two, Really?

It’s not just another rule. It’s a move to stop big companies from dodging taxes by parking profits in countries with little or no tax.

 

Here’s the deal:

 

If your group makes over EUR 750 million globally, and you’ve hit that mark in two of the last four years, you’re in the zone. You’ll be expected to hit a 15% effective tax rate. Doesn’t matter if you’re in Dubai, Dublin, or Delhi.

 

And if you’re paying less, say, 9% in the UAE, you might owe the extra 6% as a top-up.

In a free zone with 0% tax? The gap is even wider.

Who Does This Apply To?

Only very large groups are affected, specifically those that:

  • Earn at least EUR 750 million in total revenue worldwide

  • Hit that level in two of the last four years

If your group doesn’t meet that threshold, you can ignore Pillar Two for now.

 

But if it does, your UAE holding company is affected, even if you’re in a free zone or currently paying 0% tax.

What Happens in the UAE?

The UAE’s standard corporate tax rate is 9%. That’s below the 15% global minimum, so qualifying businesses may have to pay more. To fill the gap, the UAE may charge a top-up tax called the Domestic Minimum Top-up Tax (DMTT).

 

Let’s Simplify:

 

If your company only pays 9%, and it should be paying 15% under Pillar Two rules, the UAE could charge you an extra 6% tax to close that gap.

Let’s Look at an Example

Imagine your company is part of a large multinational group with global revenue over EUR 750 million.

  • You’re based in the UAE mainland and pay 9% corporate tax.

  • Under Pillar Two, you should be paying 15%.

  • The UAE may apply a 6% top-up tax to reach that 15%.

Now let’s say your company is in a free zone and currently qualifies for 0% tax under QFZP status.

  • Under Pillar Two, the entire 15% might apply as a top-up—because 0% is too low.

You could lose the advantage of being in a free zone if you’re part of a large global group.

Summary: How Tax Exposure Changes

Holding Company Jurisdiction Corporate Tax Rate Subject to Pillar Two? Additional Tax Exposure
UAE Mainland
9%
Yes (if ≥ EUR 750M group)
6% via DMTT
Free Zone (QFZP, Exempt)
0%
Yes (if ≥ EUR 750M group)
Full 15% may apply
DIFC/ADGM Holding Co.
0–9%
Yes (case-by-case)
6–15% depending on structure

What Should You Do?

If your company is part of a large multinational group:

  • Check your effective tax rate (ETR) — what are you really paying in each country?

  • Reassess your UAE setup — is your QFZP status still helpful, or could it trigger a 15% tax anyway?

  • Look into group restructuring — combining companies, adjusting where income is earned, or reworking ownership can reduce tax exposure.

  • Stay compliant — the UAE will follow OECD GloBE rules, and your documentation must match.

If you’re not part of a huge group, you’re safe (for now). But if your group is global and big, and your UAE holding company is paying less than 15% tax, expect to pay more under Pillar Two.

Planning ahead is essential.

Compliance and Reporting Obligations

Owning a holding company in the UAE is not just about sitting back and collecting dividends. There’s paperwork. And deadlines. 

 

Miss one—and it could cost you.

 

Let’s walk through what the law expects from you.

Corporate Tax Return

You have to file a return. Every year.

  • You get 9 months from the end of your financial year.

  • So, if your year ends 31 December 2024, your deadline is 30 September 2025.

  • You’ll file it through the EmaraTax portal (FTA’s official platform).

That’s your basic tax obligation, no matter where your holding company is set up.

ESR (Economic Substance)

This one depends on what kind of income your company earns.

  • If you’re just holding assets; dividends, shares, etc, you might be considered a pure holding company. The rules are easier here.

  • But if you’re earning anything else (like service fees), you’re in the full ESR zone. That means more disclosure and more documentation.

The report is due within 6 months of your financial year-end. Fines for getting this wrong? Anywhere from AED 20,000 to AED 50,000.

Transfer Pricing (TP)

Here’s where it gets a bit technical, but if you’re dealing with related-party transactions, this is a must.

  • If your company makes AED 50 million or more in revenue, you need to submit a disclosure form.

  • If you’re crossing AED 200 million in turnover or have related-party transactions of AED 50 million+, you’ll also need Master and Local Files.

  • These need to follow OECD guidelines—not something you can DIY on a weekend.

Late or incorrect filings? Corporate tax penalties range from AED 500 to AED 20,000, depending on the issue.

 

Setting up a holding company in the UAE can save you a lot in tax. That’s the good news. But there’s a catch, it only works if you follow the rules and stay on top of your structure.

 

So let’s keep it simple: here’s what works, what doesn’t, and how to stay out of trouble.

Why Holding Companies Still Work in the UAE

There are solid reasons people are still choosing the UAE.

  • You can get 0% tax

if you’re a Qualifying Free Zone Person (QFZP). That means your income fits the approved list and you follow the rules. If you do that, you don’t pay corporate tax on that income. And yes, that includes things like dividends and capital gains.

  • There are treaties. Lots of them.

The UAE has agreements with over 130 countries. That helps when you’re sending money abroad you may pay less tax, or even none.

  • It makes cross-border stuff easier.

You can hold shares in other countries, consolidate things in one place, and not deal with a messy paper trail across five jurisdictions.

  • It’s good for long-term planning.

If you’re thinking ahead, passing assets to your kids, planning your estate, this is one of the simplest ways to do it cleanly.

  • Extra exemptions.

If you meet the right conditions (own 5%, hold it for at least a year, etc.), you don’t pay tax on dividends or gains. That’s in Article 23 of the tax law.

What Can Go Wrong

People assume the 0% rate is guaranteed. It’s not. If you mess up, even without realizing, you could lose everything the structure was supposed to protect.

  • Start earning the wrong kind of income? That’s a red flag.

Income from clients in mainland UAE or services not allowed under QFZP rules. This puts you at risk. You may suddenly be taxable.

  • Just getting a license isn’t enough.

You need real substance. That means having an office, doing real work from the UAE, maybe even hiring staff. Otherwise, the tax authority could say, “This company doesn’t really exist here.”

  • Offshore management? That’s a no.

If all decisions are being made from another country, the FTA won’t consider your company UAE-based. And your tax benefits vanish.

  • No proper records? That’s risky.

You need minutes of board meetings. Audited financials. Resolutions that show you’re managing the business properly. Without those, your setup looks fake.

  • And don’t ignore Economic Substance Rules.

Even if your company just holds shares and collects dividends, it might still need to report under ESR. Miss a filing, and you could be fined or flagged.

What You Should Be Doing Instead

It’s not about tricks. It’s about smart structure, solid reporting, and knowing the limits.

  • Make sure your income qualifies.

Stick to activities that fall under the QFZP umbrella. Avoid side activities that could pull you into taxable territory.

  • Use the participation exemption.

Own more than 5% of a subsidiary? Hold it long enough? You may not pay tax on the dividends or capital gains. But you have to check the conditions closely.

  • Consider restructuring if needed

Maybe the way your company is set up made sense two years ago. But laws change. Your business changes. You may need to realign or move some things around.

  • Think long term.

If this is a family business, build the structure now so it works for the next generation. Don’t wait for a tax problem to force a rushed decision.

  • And most importantly, get advice.

This stuff isn’t one-size-fits-all. Work with someone who understands UAE tax law and how to keep your setup legal and efficient at the same time.

Conclusion

Holding companies aren’t going anywhere. They’re still one of the smartest ways to structure ownership, manage investments, and protect wealth, especially in the UAE.

 

But the game has changed. With corporate tax in play, you can’t just set it and forget it anymore. The UAE still offers major planning advantages, but only if you stay compliant, file on time, and keep your structure clean.

 

That’s where expert guidance matters. Because the penalties for getting it wrong? They’re real. And so are the missed opportunities if you don’t know what exemptions you qualify for.

 

Serious about getting this right?

 

Our team at ADEPTS helps businesses design tax-smart, fully compliant holding company structures, without the guesswork.

 

Let’s sit down, review your setup, and get ahead of what’s coming.

FAQs:

It depends on how the company is set up and whether it meets specific FTA rules. Some holding companies may qualify, but it’s not automatic or guaranteed.

If a company fails to meet the conditions, it could lose QFZP status even for past years. It’s important to review activities, filings, and substance regularly to avoid surprises.

Even passive holding companies must meet a basic substance test. That usually means showing management is happening inside the UAE through directors, meetings, and proper record-keeping.

Mixed income can affect QFZP status. Depending on how much is earned and how it’s classified, part or all of the income could become taxable under corporate tax law.

Having offshore control or shadow management might weaken your case for UAE substance. The FTA may challenge your status if key decisions aren’t clearly made from within the UAE.

Without audited accounts, filings may be incomplete or inaccurate. This can lead to penalties, delays, or loss of tax benefits, especially for companies trying to prove substance or exemptions.

Access to DTTs depends on several factors, including where management decisions are made. Just being based in ADGM isn’t enough—you still need to prove you’re a UAE tax resident.

Red flags often include missed filings, mainland income, lack of substance, or inconsistent records. A mismatch between license type and real activities can also catch the FTA’s attention.

Resources

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