Recent Updates to UAE Excise Tax Laws: What’s New for 2025?
February 26, 2025
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Holding companies play a crucial role in business structuring, providing investors with a way to manage assets, reduce risks, and optimize tax efficiency.
The UAE has long been an attractive jurisdiction for holding companies due to its business-friendly environment, regulatory flexibility, and tax advantages.
However, with the introduction of corporate tax, investors must reassess how holding companies operate and what tax obligations they now face.
The new UAE corporate tax framework requires holding companies to comply with specific tax rules, impacting how they manage their subsidiaries, structure investments, and distribute profits.
While some tax exemptions and incentives remain, businesses must now ensure they meet economic substance requirements (ESR), transfer pricing rules, and corporate tax filing obligations.
For investors and business owners, understanding how corporate tax applies to holding companies is essential for minimizing tax risks, maintaining compliance, and protecting assets.
This article provides a detailed breakdown of the UAE corporate tax system for holding companies, covering tax treatment, compliance obligations, and strategies for optimizing tax efficiency.
Holding companies in the UAE are primarily used for asset management, investment control, and ownership of subsidiaries. Unlike operational businesses, they typically do not engage in active trading or service provision.
This distinction is crucial when determining how corporate tax applies under the new UAE tax regime.
Under the UAE corporate tax law, holding companies are subject to 9% corporate tax on net profits if their taxable income exceeds AED 375,000.
However, because holding companies do not engage in active business operations, their tax liability largely depends on the nature of the income they generate.
Income derived from passive investments, dividends, and capital gains is generally exempt from corporate tax if it meets specific conditions set by the Federal Tax Authority (FTA).
However, holding companies that receive income from UAE-based subsidiaries or engage in intercompany financing may be subject to tax on those earnings.
One of the key advantages of operating a holding company in the UAE is the exemption on dividends and capital gains.
Under the corporate tax law, dividends received from domestic and qualifying foreign subsidiaries are not taxable, provided the holding company meets the participation exemption requirements.
To qualify for this exemption, the holding company must maintain a minimum ownership stake in the subsidiary and ensure that the subsidiary is subject to taxation in its home jurisdiction.
If these conditions are met, capital gains from the sale of shares in a qualifying subsidiary are also exempt, making the UAE an attractive location for investors managing equity portfolios.
While holding companies in the UAE may benefit from dividend and capital gains exemptions, they are still required to comply with the corporate tax filing and reporting obligations set by the Federal Tax Authority (FTA).
Non-compliance can lead to penalties, audits, or loss of tax exemptions, making it essential for investors to ensure their holding structures meet all regulatory requirements.
Holding companies must comply with Economic Substance Regulations (ESR) if they are engaged in relevant activities, such as holding intellectual property, managing group financing, or conducting headquarters operations.
The UAE introduced ESR to prevent businesses from using holding structures solely for tax advantages without having a genuine operational presence.
For a holding company to remain compliant, it must demonstrate that it has adequate physical presence in the UAE, including a registered office, key personnel, and decision-making functions conducted within the country.
Failing to meet ESR requirements can result in fines, disqualification from tax exemptions, or reputational risks for investors.
Holding companies that engage in cross-border intercompany transactions must adhere to OECD-based transfer pricing rules.
The UAE requires businesses to document and justify transactions between related entities, ensuring they are conducted at arm’s length—meaning they must be priced as if they were between independent parties.
This requirement is particularly relevant for holding companies involved in group financing, royalty payments, or service fee allocations.
Businesses must maintain transfer pricing documentation, including Local and Master Files, to support their tax filings and avoid disputes with the FTA.
A failure to comply with transfer pricing regulations could lead to adjustments in taxable income, additional tax liabilities, and potential penalties.
To optimize tax efficiency while maintaining compliance, holding companies must adopt strategic tax structuring methods that align with the UAE’s corporate tax framework.
Proper structuring ensures that businesses benefit from tax exemptions while minimizing the risk of unnecessary tax liabilities or regulatory scrutiny.
Holding companies in the UAE can be established in mainland jurisdictions or free zones, and the choice of structure directly impacts corporate tax treatment.
While mainland holding companies are subject to the standard 9% corporate tax on taxable income, free zone holding companies may still benefit from a 0% corporate tax rate on qualifying income, provided they meet economic substance and regulatory requirements.
Investors managing international assets often prefer UAE free zone holding companies due to their ability to conduct cross-border investments while benefiting from participation exemptions on foreign dividends and capital gains.
However, businesses that hold shares in UAE mainland subsidiaries must carefully evaluate their tax exposure, as income derived from mainland operations may be subject to corporate tax.
Holding companies play a key role in profit repatriation, distributing dividends and managing cash flows between subsidiaries.
Since dividend distributions are tax-exempt in the UAE, companies can structure their finances to ensure that profits are efficiently transferred without additional tax burdens.
For multinational holding structures, careful planning is required to avoid withholding tax issues in other jurisdictions.
Businesses must assess the double tax treaties (DTTs) signed by the UAE to determine whether profits can be repatriated tax-efficiently.
Structuring dividend payments, royalty arrangements, and intercompany loans in compliance with both UAE tax laws and international tax agreements ensures that businesses minimize tax exposure while maintaining regulatory compliance.
Holding companies in the UAE can be set up in mainland or free zones, and choosing the right jurisdiction significantly impacts corporate tax obligations, regulatory requirements, and overall tax efficiency.
Investors must carefully assess whether their holding structure is best positioned to benefit from participation exemptions on dividends, capital gains exemptions, and double tax treaties (DTTs).
For businesses managing regional and international investments, establishing a free zone holding company can be beneficial if structured properly.
While free zone entities may qualify for a 0% corporate tax rate on qualifying income, they must ensure they comply with economic substance regulations (ESR) and do not generate taxable income from mainland UAE sources.
Holding companies that derive income from UAE mainland subsidiaries may need to restructure ownership arrangements to manage corporate tax exposure effectively.
Mainland holding companies, on the other hand, provide more flexibility in conducting business activities within the UAE, but they are subject to corporate tax on taxable income exceeding AED 375,000.
Investors must assess which entity should own revenue-generating assets and how to allocate income to maintain optimal tax treatment.
If a holding company’s primary role is asset management and oversight, structuring it in a tax-efficient free zone while using separate operational entities for revenue-generating activities can help balance tax efficiency and compliance.
A key function of holding companies is managing intercompany loans, profit distributions, and treasury operations.
With the UAE now enforcing transfer pricing regulations, holding companies must ensure that all intercompany financial transactions comply with the arm’s length principle to avoid tax disputes.
For businesses that finance subsidiaries through intercompany loans, interest payments must be priced at market rates, supported by proper documentation, and aligned with OECD transfer pricing guidelines.
If interest rates are set artificially high or low to shift profits within the group, tax authorities may adjust taxable income, leading to additional tax liabilities and penalties.
Investors should conduct regular transfer pricing reviews to ensure that intra-group financing arrangements remain compliant while optimizing tax efficiency.
Profit repatriation strategies should also be designed to minimize withholding tax exposure in foreign jurisdictions.
Holding companies that own shares in international subsidiaries must assess whether dividends can be distributed tax-free or at a reduced withholding tax rate under UAE’s double tax treaties (DTTs).
However, accessing these treaty benefits requires businesses to demonstrate real economic substance, meaning that decision-making functions, financial management, and governance activities should be conducted within the UAE.
For multinational investors, the UAE’s tax structuring strategies must also align with global tax regulations, particularly in light of the OECD’s Pillar Two initiative on Global Minimum Tax (GMT).
Large multinational groups with global revenues exceeding EUR 750 million will be required to pay a minimum 15% corporate tax, even if operating in a low-tax jurisdiction like the UAE.
Although this policy primarily affects large enterprises, smaller holding companies must still prepare for future tax changes by ensuring strong governance, accurate financial reporting, and compliance with international tax rules.
Companies that fail to maintain transparent ownership structures and financial records may face challenges when accessing foreign tax treaties, repatriating profits, or justifying tax positions in cross-border transactions.
While the UAE remains an attractive jurisdiction for holding companies, the introduction of corporate tax has increased the importance of risk management and regulatory compliance.
Investors must ensure that their holding structures are aligned with global tax standards to avoid potential penalties, audits, or tax disputes.
Holding companies that lack operational substance may attract regulatory scrutiny, particularly if they claim tax exemptions on dividends and capital gains.
The UAE authorities are closely monitoring businesses to prevent profit shifting or the use of shell companies for tax avoidance purposes.
To strengthen compliance, holding companies must establish a clear business presence, including a registered office, corporate governance policies, and active management functions conducted in the UAE.
Decision-making activities, such as board meetings and financial control, should take place within the country to reinforce the company’s legitimacy.
Businesses that fail to meet these requirements risk corporate tax reclassification or the loss of preferential tax treatment.
Multinational holding structures must carefully assess cross-border tax obligations to avoid potential double taxation on international income streams.
The UAE has an extensive network of double tax treaties (DTTs) with over 100 countries, providing tax relief mechanisms that help investors mitigate withholding tax exposure on dividends, interest, and royalties.
Investors should evaluate how income from foreign subsidiaries is taxed and whether UAE-based holding structures provide genuine tax advantages.
While corporate tax exemptions on foreign dividends and capital gains remain available, holding companies must demonstrate that they meet the participation exemption requirements to claim these benefits.
The UAE tax authorities have made it clear that substance matters. Holding companies that exist only on paper or lack actual business operations in the UAE are at higher risk of tax scrutiny, audits, and potential reclassification.
To maintain compliance and avoid challenges from tax authorities, holding companies must demonstrate real operational presence within the UAE.
Ensuring substance involves having a registered office, engaging in active decision-making within the UAE, and maintaining qualified personnel responsible for overseeing financial and investment activities.
Simply holding shares in subsidiaries is not enough; authorities want to see that a holding company plays a role in strategic management, financial oversight, and asset allocation.
Annual board meetings should be conducted in the UAE, and decisions regarding investment strategies or fund distributions should be documented to prove that key management functions occur within the jurisdiction.
Investors must also ensure that their legal and financial records support the company’s tax position, as weak documentation increases the risk of audits and penalties.
Many holding companies engage in cross-border transactions with related entities, whether through dividend distributions, royalty payments, management fees, or intercompany loans.
The UAE follows OECD-aligned transfer pricing rules, requiring businesses to ensure that all related-party transactions are conducted at arm’s length—meaning they should be priced similarly to transactions between independent companies.
Mispricing intercompany transactions can lead to tax adjustments, additional liabilities, and penalties.
To reduce these risks, holding companies must prepare detailed transfer pricing documentation that justifies how prices for intercompany dealings are determined.
This documentation should include benchmarking studies, contracts, and financial records that prove transactions reflect fair market value.
Maintaining Local and Master Files for transfer pricing compliance is essential, especially for multinational holding structures.
If an entity fails to demonstrate proper pricing policies, tax authorities may reallocate profits and impose additional tax liabilities, increasing the company’s financial exposure.
Holding companies with foreign subsidiaries or international investment portfolios must carefully manage their global tax obligations to avoid unnecessary tax burdens.
While the UAE provides tax exemptions on dividends and capital gains, foreign jurisdictions may impose withholding taxes on profit distributions, reducing the overall tax benefits of the holding structure.
To mitigate double taxation risks, businesses should take advantage of UAE’s network of double tax treaties (DTTs).
The UAE has agreements with over 100 countries, allowing businesses to benefit from reduced withholding tax rates on dividends, interest, and royalties.
However, access to treaty benefits depends on whether the holding company meets substance and beneficial ownership requirements.
If a tax authority in another jurisdiction determines that a UAE holding company exists solely for tax purposes without real economic activity, it may deny treaty benefits, resulting in higher tax exposure.
To prevent this, businesses should align their operational and tax strategies, ensuring that investment management functions, financial oversight, and decision-making activities occur in the UAE.
Additionally, holding companies should conduct tax residency assessments in jurisdictions where they operate to confirm that they are not inadvertently creating a permanent establishment (PE) risk.
If a foreign tax authority deems a UAE-based holding company to have a taxable presence in its jurisdiction, it could lead to corporate tax liabilities outside the UAE, increasing compliance costs and tax risks.
A holding company’s tax risks can be significantly reduced by establishing strong tax governance frameworks that ensure compliance with UAE corporate tax laws and international tax standards.
Investors must regularly review their tax structures, corporate governance policies, and financial reporting systems to detect and address potential compliance gaps.
Annual internal audits, tax health checks, and regulatory reviews help businesses identify areas of non-compliance before they attract attention from tax authorities.
Establishing clear financial controls, well-documented policies, and automated reporting systems ensures that tax filings remain accurate and aligned with UAE regulations.
Working with experienced tax consultants and legal advisors allows holding companies to stay ahead of regulatory changes, tax treaty amendments, and compliance risks.
As corporate tax enforcement in the UAE continues to strengthen, businesses that invest in tax risk management strategies will maintain financial stability, regulatory confidence, and long-term tax efficiency.
With the UAE aligning its corporate tax system with global tax standards, holding companies must stay proactive in adjusting their structures to maintain tax efficiency and compliance.
As international tax regulations evolve, businesses must be prepared for potential changes that could impact how dividends, capital gains, and intercompany transactions are taxed.
The UAE’s corporate tax system is expected to integrate further with international tax frameworks, particularly with the OECD’s Global Minimum Tax (GMT) initiative under Pillar Two.
Large multinational groups with revenues exceeding EUR 750 million may be required to pay a minimum 15% corporate tax, regardless of the UAE’s 9% tax rate.
While this currently affects only large enterprises, smaller holding companies should monitor these developments, as future tax amendments may introduce new rules for international tax transparency and profit allocation.
To ensure long-term success, holding companies must prioritize tax governance by implementing robust compliance frameworks, regular tax audits, and financial transparency.
Businesses that adopt proactive tax planning strategies will not only safeguard their tax benefits but also build credibility with regulators, investors, and financial institutions.
Working with tax advisors and legal experts is essential for navigating the complexities of UAE corporate tax laws.
By continuously monitoring regulatory changes and refining their holding structures, investors can maintain tax-efficient operations while ensuring compliance with UAE tax regulations and international tax obligations.
The UAE remains a top jurisdiction for holding companies, offering attractive tax benefits, a strong regulatory environment, and global connectivity.
However, with corporate tax enforcement expanding, investors must ensure their holding structures are aligned with the latest tax regulations to protect their profits, assets, and long-term financial interests.
By adopting strategic tax planning, optimizing intercompany transactions, and maintaining regulatory compliance, holding companies can continue to benefit from UAE’s corporate tax advantages while minimizing risks.
Businesses that take a proactive approach to tax structuring will be well-positioned to navigate the UAE’s evolving tax landscape.
For investors and business owners seeking expert guidance on corporate tax planning, Protax Advisors offers specialized consulting services tailored to holding companies in the UAE.
Whether you need help with corporate tax structuring, ESR compliance, or international tax planning, our team is ready to assist.
Schedule a consultation call and learn how our expertise in accounting and tax services can benefit your business.