UNITED ARAB EMIRATES Law and Practice Contributed by: Yasser Omar and Laryssa Perkins, Hadef & Partners LLC
9.4 Tax on Sale or Other Dispositions of FDI A non-resident company will only be subject to capital gains tax in the UAE where such gains are attributable to a PE in the UAE, arise from immovable property held in the UAE, or where this is attributed to the com - pany as an investor in a QIF or REIT. A non-resident natural person will be subject to capital gains tax only where the gains are derived from carrying on a busi - ness or business activities in the UAE and the annual turnover from those activities exceeds AED 1 million, noting that certain income streams, including per - sonal investment income and real estate investment income, are excluded. A participation exemption is available in relation to gains derived from the disposal of shares or other capital interests in a juridical person provided certain requirements are met in relation to the participating interest, including: • an ownership interest of at least 5% or aggregated acquisition cost of AED4 million or more; • a holding period of at least 12 months; • the participation is subject to CT (or similar tax in the foreign jurisdiction) at a rate not less than 9%; • the participation interest entitles the taxable person to receive not less than 5% of the profits and liqui - dation proceeds; and • not more than 50% of the direct/indirect assets of the participation consist of ownership interests or entitlements that would not have qualified for the participation exemption if held directly by the tax - able person. An ownership interest as contemplated above includes not only shares, but also partnership inter - ests, provided it carries rights to the profits and liqui - dation proceeds of the participation and it is treated as an equity interest under the accounting standards applied by the taxable person holding the ownership interest. 9.5 Anti-Evasion Regimes At present the Corporate Tax Law does not contain any specific anti-avoidance rules in relation to FDI or “anti-hybrid” rules. However, it does contain a general anti-avoidance rule that can be applied to a transac - tion, if having regard to all the relevant circumstances,
it can reasonably be concluded by the tax authority that: • entering into or carrying out the transaction or arrangement, or any part of it, is not for a valid commercial or other non-fiscal reason which reflects economic reality; and • the main purpose or one of the main purposes of the transaction or arrangement, or any part of it, is to obtain a corporate tax advantage that is not consistent with the intention or purpose of the Corporate Tax Law. The Corporate Tax Law also imposes arm’s length pricing requirements on related-party transactions and payments to connected persons. Failure to com - ply with these requirements could result in an adjust - ment of taxable income or a disallowance of deduct - ible expenditure. 10. Employment and Labour 10.1 Employment and Labour Framework Private onshore UAE entities are governed by UAE Federal Decree-Law No 33 of 2021 (as amended) (the “Labour Law”), along with the implementing regula - tions. The free zones apply their own regulations, which require compliance with the minimum stand - ards of the Labour Law. The DIFC and the ADGM are free zones which provide an employment framework which is more aligned to the UK employment regime, often making these financial free zones attractive to overseas investors and multinational companies. Collective bargaining and rights, trade unions and employee/works councils do not exist in the UAE. All employees are required to hold a valid sponsored residency visa and work permit to work in the region. The management of the employment relationship and the termination of employment are generally consid - ered to be straightforward, with dismissal with notice or without notice in specific circumstances available to employers. Employment contracts under the Labour Law are required to be for a fixed term but notice to
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