UAE Corporate Tax Benefits: Why Investors Should Set Up Holding Companies
For both businesses and investors, the UAE has become one of the most attractive places to visit across the globe. This is due to its advanced infrastructure, beneficial geographic location, and strict regulatory framework. Even though the country introduced the corporate tax law, certain structures can benefit tax efficiency, especially as holding companies.
By establishing a holding company in the UAE, investors, multinational entities, family offices and private funds can facilitate the aggregation of worldwide assets, and also the holding companies can enhance control and can enjoy benefits from taxes. This blog can help you understand why holding companies are a smart investment plan in the UAE, how participation exemption operates under the corporate tax regime and also how combining a holding company structure and family foundation structure can bring you tax efficiency and result in the preservation of wealth more effectively.
Why Set Up a Holding Company in the UAE?
A holding company in the UAE is a legal entity that operates mainly to hold the assets or shares of other businesses. Though the holding company does not carry out any business operations directly, it provides various advantages:
Key benefits include:
- Subject to certain conditions, holding companies can avail 0% corporate tax in qualifying Free Zones
- Foreign ownership can be 100% with no local sponsor needed
- No restrictions on moving profits abroad and full capital repatriation
- It’s perfect for individual investors with zero personal income tax.
- Modern rules and regulations in financial centres and free zones
- protection of intellectual property and investment assets
- Effective estate and succession planning options
- Strategic location for managing foreign investments across Europe, Asia, and Africa
- Access to top-notch banking, legal, and financial services
Depending on how it is set up, a UAE holding company can also execute contracts, own real estate, create multi-currency bank accounts, and even hire employees. Below are the effective setups to hold assets and the benefits associated with the structures, depending on the feasibility
The Participation Exemption: Key Tax Advantage
The Participation Exemption, a system that avoids double taxation on specific types of income derived from investments, is one of the most attractive tax benefits under the UAE's corporate tax law.
What Is the Participation Exemption?
If a UAE holding company generate money like dividends or capital gains from any of the qualifying activities in another company, then the participation exception is applicable, which means those incomes are exempt under UAE corporate tax under certain conditions.
Qualifying Income Includes:
- Dividends
- Profits(Capital gains) from selling shares
- Foreign exchange and an increase or decrease in asset value (if they are directly related to a qualifying shareholding)
Conditions to Qualify:
To get the benefit from the participation exemption, the following must apply:
1. Minimum Ownership: The UAE company should own at least 5% of the subsidiary’s shares, or should have an investment of AED 4 million or more
2. Holding Period: The shares must be kept for at least a period of 12 months, or there should be an intent to hold them.
3. Taxation of Subsidiary: The subsidiary must pay a tax of 9% or more in its own jurisdiction, or there should be an equivalent tax rate
4. Asset Composition: No more than 50% of the subsidiary’s assets can be non-qualifying (e.g., passive or low-tax assets)
5. Profit Rights: The UAE company must have the rights to at least 5% of profits or liquidation proceeds.
Example:
A UAE holding company owning 10% of a European firm, where the taxation is 15%. Investor returns are increased because dividends and capital gains earned after more than a year of ownership are excluded from UAE corporate tax.
II.Holding Shares as a Qualifying Business Activity
Under the UAE regulations, holding investments and shares is considered a valid business activity; hence, this model is ideal for:
- Joint ventures and special purpose vehicles (SPVs)
- Private equity and investment firms are consolidating cross-border portfolios
- Multinational companies managing national or international subsidiaries
- Family offices protecting wealth across generations.
With low operating costs and transparent governance, the UAE makes it possible to manage these businesses effectively.
III.Introducing Family Foundation
A private legal entity set up to protect, control and distribute family wealth while reducing taxes is considered a family foundation. It provides high standards of confidentiality, security and legal protection and operates similarly to a trust or private fund.
Key Purposes:
- Centralised wealth and business control
- Long-term asset protection
- Effective succession and estate planning
- Separating risk from functioning businesses
Family foundations in the United Arab Emirates can be registered in reputed jurisdictions like:
- Abu Dhabi Global Market (ADGM)
- Dubai International Financial Centre (DIFC)
- RAK International Corporate Centre (RAK ICC)
These places have strong government systems and structure, excellent legal support and attractive tax benefits.
IV.Holding Companies & Family Foundations: A Strategic Combination
Even further tax savings and better management benefits can be obtained when a family foundation fully owns a UAE holding company, especially if it is set up as an unincorporated partnership.
Holding companies and family foundations can even further save taxes and can obtain management benefits when the foundation fully owns a UAE holding company, particularly if it is organised as an unincorporated partnership.
Key Benefits of This Combined Structure:
- No tax at the holding company level (if treated as a pass-through entity)
- Profits go directly to the foundation or individual beneficiaries
- Lower tax burden on inheritance, dividends, and capital gains (depending on tax residency of beneficiaries)
- Simplified wealth transfer across generations
- Enhanced privacy and control over worldwide assets
Example:
A high-net-worth family establishes a foundation in ADGM, which owns a UAE holding company. The holding company invests in real estate, stock portfolios, and private equity. Since the structure is treated as a partnership, profits are not taxed at the company level and flow directly to the foundation—minimising tax leakage and improving long-term wealth planning.
Who Should Consider This Structure?
Setting up a holding company in the UAE by yourself or by a family foundation is a better option for:
- Cross-border investors prefer efficient, tax-compliant structures
- Organisations managing foreign subsidiaries or joint ventures
- Ultra-rich families protecting generational wealth over time
- Portfolio Managers optimising worldwide assets
- Entrepreneurs bring together personal and business assets
Why Choose Flyingcolour Tax Consultant UAE?
The UAE offers a powerful combination of strategic tax advantages, financial protection, and legal security; hence, it is considered unique:
- 0% personal income tax and better corporate tax rules
- Advantages of tax treaties between over 140 countries
- Retain full foreign ownership and control
- Structuring can be done in globally recognised financial hubs
- Ensure asset protection and privacy
- Enjoy fast and low compliance costs compliances
Conclusion: Plan Smarter, Invest Smarter
The UAE gives international investors, company owners, and wealthy families a one-of-a-kind chance to better manage their assets and keep their riches safe for future generations by setting up a holding company—especially when paired with a family foundation. You have access to a robust, tax-efficient structure that supports long-term investment goals, international expansion, and estate planning
Ready to unlock the full potential of UAE tax structures?
In one of the world's most investor-friendly jurisdictions, let our team of experts help you create the right legal entities, stay in compliance, and maximise your financial gain.
To learn more about Unlocking UAE Corporate Tax Benefits: Why Investors Should Set Up Holding Companies, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.