For two decades an Emirati company sat at the bottom of a chart with nothing written next to it. There was no federal corporate tax, so the tax questions arose further up. A Dutch holding above an Emirati subsidiary was chosen for treaty access, for credibility with counterparties and banks, and for the route it opened into the single market.
That stopped being accurate in 2023, and the consequences are still working through structures designed before it. Federal Decree-Law No. 47 of 2022 imposes corporate tax, and its Article 69 applies it to tax periods commencing on or after 1 June 2023. The rate is low. The regime is not simple, and several of the things a Dutch holding used to do above an Emirati company now have to be argued rather than assumed.
What the law imposes, and on whom
Taxable income up to an amount fixed by the Cabinet under Article 3 is taxed at zero per cent, and the excess at nine per cent. Cabinet Decision No. 116 of 2022 fixed that amount at 375,000 dirhams. It is one slice per taxable person however many businesses it runs, and separating a business artificially across several persons to multiply it is an arrangement caught by Article 50, the general anti-abuse rule.
Under a separate clause of the same article a free zone company pays zero per cent on what the legislation calls Qualifying Income and nine per cent on taxable income that is not Qualifying Income. That is a conditional regime, not an exemption, and it turns on a test that many free zone companies do not pass. It is treated in our note on free zone companies and the qualifying income test.
Article 45 subjects the categories of state-sourced income prescribed by the Cabinet to withholding tax at zero per cent, or at any other rate the Cabinet later specifies. Dividends, interest and royalties therefore leave the Emirates without deduction at source.
The participation exemption at the bottom of the chart
Article 23 exempts income from a participating interest, which is an ownership interest of at least five per cent in the shares or capital of a juridical person, held or intended to be held for an uninterrupted period of at least twelve months, where the participation is subject to corporate tax, or to a tax of similar character under the law of its state of residence, at a rate not less than nine per cent. Two further conditions apply, and the Minister may add more: the interest must carry at least five per cent of the profits available for distribution and of the liquidation proceeds, and not more than half of the participation’s direct and indirect assets may consist of interests that would not themselves have qualified.
That nine per cent condition is not read off a headline rate. Article 23 deems it met for a participation that is a Qualifying Free Zone Person or an Exempt Person, and for one whose principal objective is holding qualifying shares and whose income substantially consists of participation income. Ministerial Decision No. 116 of 2023 attaches four cumulative conditions to that holding company route: the participation must be directed and managed in its own state, meet its filing obligations there, have personnel and premises there adequate to acquiring and holding the shares, and conduct nothing beyond what is incidental or ancillary to that. The same decision reads substantially as fifty per cent or more of income averaged over the tax period and the one before, and separately lets an effective rate of at least nine per cent satisfy the condition.
The condition excludes subsidiaries that used to be a matter of indifference. A group holding an operating company in a state with no corporate tax, or with a rate below nine per cent, has to test the exemption against those routes rather than assume it, and a passive letterbox holding is exactly what the direction and management and the personnel and premises conditions exclude.
Dividends travelling up to the Netherlands
Upward, the flow is straightforward: the Emirates deduct nothing under Article 45. At the Dutch end, article 13 of the Wet op de vennootschapsbelasting 1969 applies the participation exemption to a shareholding of at least five per cent of the nominal paid-up capital, so a qualifying dividend from the Emirati subsidiary is left out of the Dutch tax base.
The five per cent is not the whole test. The ninth paragraph withholds the exemption from a participation held as a portfolio investment unless it qualifies under the eleventh, which asks whether the subsidiary bears a profit tax amounting to a real levy by Dutch standards, or holds fewer than half its assets as low-taxed free investments. Both limbs turn on that same real levy standard, so the regime is aimed at low taxation and not only at its absence, and the Belastingdienst treats a rate of ten per cent as normally meeting it, comparing the base against Dutch annual profit rules. A nine per cent headline rate, with a first slice relieved and nothing at all on free zone qualifying income, sits below that reference point, which makes the comparison harder to run than the flat zero it replaced, not easier.
The Dutch rates that apply to whatever is not exempt are set by article 22 of the same act: nineteen per cent on the taxable amount up to 200,000 euro and 25.8 per cent above it, in the version in force from 1 January 2026. Those rates bear on the Dutch company’s own margin, not on the participation income.
Dividends travelling down, and the treaty
The Netherlands levies dividend withholding tax at fifteen per cent under article 5 of the Wet op de dividendbelasting 1965. The convention between the Netherlands and the Emirates, in force since 2 June 2010, reduces that to five per cent of the gross amount where the beneficial owner is a company whose capital is wholly or partly divided into shares and which holds directly at least ten per cent of the capital of the paying company, and to ten per cent in all other cases. A separate paragraph takes the rate to nil for the states and their public bodies, pension funds, the Abu Dhabi Investment Authority and Investment Council, and comparable government institutions the competent authorities agree on.
Interest and royalties are treated more generously. Under articles 11 and 12, interest and royalties arising in one state and beneficially owned by a resident of the other are taxable only in that other state. There is no source-state rate at all on either.
The constraint is not the rate. It is whether the recipient can be shown to be the beneficial owner and whether the arrangement survives the anti-abuse tests. Both states listed the convention under the Multilateral Instrument, so the principal purpose test in its article 7(1) replaces the main purpose rule the dividends article already carried; it can deny a treaty benefit, never create one. The Emirates reserved article 8 of that instrument in its entirety, so no minimum holding period attaches to the five per cent rate.
The Dutch anti-abuse layer, and a list that has changed
The conditional withholding tax under the Wet bronbelasting 2021 applies to interest and royalties, and since 2024 to dividends, paid to affiliated entities in designated states. Article 4.1 sets the rate at the highest percentage in article 22 of the corporate income tax act, which is 25.8 per cent for 2026.
The states are designated by the Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden. In the version in force from 1 January 2026 the Emirates do not appear on either limb of that regulation. Bahrain does, and a second limb is drawn from the European Union’s non-cooperative list. A state goes on the first limb only if it levies no profit tax on companies or levies one below nine per cent, so the Emirati rate sits exactly on the line, and that is a direct structural consequence of the 2022 law.
Groups that moved holding functions out of the Emirates in anticipation of that tax should check whether the reason still exists.
What the Dutch company still has to demonstrate
Removing a jurisdiction from a list does not remove the substance question. The Dutch entity remains subject to the general anti-abuse analysis applied to the withholding exemption and to treaty benefits, and the source state applies its own principal purpose test on its own facts.
The questions are the familiar ones. Are the decisions attributed to the Dutch company actually taken there, by directors with the mandate and the information to take them. Does it have the financial capacity to bear the risks allocated to it. Does the transfer pricing file match the board record and the conduct of the business. An Emirati group that treats the Dutch entity as a signing address will not answer well.
Article 18 of the Decree-Law makes adequate substance in the Emirates one of several cumulative conditions for a Qualifying Free Zone Person, alongside the qualifying income, election and transfer pricing conditions. Where a group runs a Dutch holding above an Emirati free zone company, it has two substance obligations pointing in two directions, and one small management team cannot credibly satisfy both.
Groups above the top-up tax threshold
Federal Decree-Law No. 60 of 2023 added a clause to Article 3 for a top-up tax bringing the effective rate on multinational enterprises to fifteen per cent, and Cabinet Decision No. 142 of 2024 imposed it. It reaches constituent entities of groups with annual revenue of at least 750 million euro in the ultimate parent’s consolidated financial statements in at least two of the four fiscal years immediately preceding the tested year, for fiscal years beginning on or after 1 January 2025.
For a group in that range the nine per cent rate is no longer the operative number, because the Emirati profit is topped up domestically rather than abroad. Most family holding structures sit well below the threshold, and for them the nine per cent regime is the whole of the analysis.
Where the Dutch holding still earns its place
The Emirati corporate tax removed one argument for a Dutch holding, which was arbitrage. Where the point was to sit an untaxed Emirati company under a European parent and let the mismatch do the work, that point is gone: Article 23 and the Dutch participation requirements both look at real rates now.
It strengthened two others, access and durability. A Dutch company gives an Emirati group a treaty network, a directive-based route into European subsidiaries, a corporate form counterparties and banks understand, and a jurisdiction whose rulings practice and case law are published. Against a subsidiary that pays nine per cent and files a return, those attributes are easier to defend.
What has not changed is the requirement that the description be true. The Emirates have acquired a corporate tax, a participation exemption, a substance condition and a return. Each is a place where the group’s own file will be read back to it.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.