Income tax on Dividend

UAE corporate tax - no income tax on Dividend

Any distribution of accumulated profits, whether capitalized or not, by a company to its shareholders is a dividend if it entails the release of all or any part of its assets. For example, if accumulated profits are distributed in cash, it is a dividend in the hands of the shareholders. Where accumulated profits are distributed in kind, for example by delivery of shares, etc. entailing the release of a company’s assets, the market value of such shares on the date of such distribution is deemed as a dividend in the hands of the shareholder.

In the UAE, in the case of any individual who is a natural person, on the dividends and any other income earned from owning shares or other securities in their personal capacity, the corporate tax won’t be applicable on the same.

Even in the case of the Free Zone Person, who doesn't have any branch in the Mainland of UAE, passive income if any, received from the transactions with the mainland entity, the applicable rate of corporate tax will be 0%. Passive income mentioned here includes interest and royalties, dividends, and capital gains from owning shares in mainland UAE companies.

While calculating the corporate tax, Dividend income from domestic companies/ free zone persons and Dividend Income from foreign companies are deducted from the profits of a business.

Dividend/profit distribution by the free zone person to a mainland UAE shareholder is taxable in case of withholding of taxes.

There are two types of people. One is taxable and another one is exempt. Taxable person includes both natural and legal persons. Natural Person is a person engaged in the business. Whereas the legal person includes companies and other Legal Entities which are incorporated in the UAE.

✔            If dividends are earned by UAE Legal Person from the UAE mainland company, they are exempted from the corporate tax chargeability.

✔            If dividends are earned by UAE Legal Person from Free Zone Person, they are also exempt from the corporate tax.

✔            If dividends are earned by UAE Legal Person from a Foreign Company, the following conditions are required to be satisfied for the dividends to get exempt from corporate tax-

a)            Own at least 5% shares in the foreign subsidiary &

b)           The foreign subsidiary should be subject to CT (or an equivalent tax) at a rate of a minimum of 9%