Participationexemption
Dividend exemption
Participation exemption — the exemption from tax of dividends and gains from stakes in subsidiaries, a key tool for holding companies.
- What it is
- Participation exemption — exempting income from shareholdings in companies from tax
- What is exempt
- Dividends and gains on the sale of shares in subsidiaries
- Who it is for
- Holding companies in suitable jurisdictions
- Why
- Avoiding multiple taxation within a group
- How to use it
- Choose a holding jurisdiction with this regime
In plain words
The participation exemption is a tax regime under which a holding company is exempt from tax on income it receives from shareholdings in other companies: above all on dividends from subsidiaries and on capital gains on the sale of such shareholdings. It is one of the key tools that make a jurisdiction attractive for locating a holding company.
The logic of the regime is to avoid multiple taxation of profit within a group of companies. The profit has already been taxed at the level of the subsidiary that earned it; if the dividends passed up to the parent holding company were taxed again, and then again when distributed further, tax would be paid many times on the same profit. The participation exemption removes this effect by exempting such intra-group income.
For international business this is fundamentally important: the existence of a participation exemption is one of the main reasons holding companies are located in certain jurisdictions (a number of EU countries and others). The regime usually requires conditions to be met: a minimum shareholding, a holding period, the nature of the subsidiary. We take this tool into account when choosing a jurisdiction for a holding company, so that the group structure is tax-efficient and lawful.
Where the exemption matters
What matters about the participation exemption
- Dividends from subsidiaries
- Gains on the sale of shares
- Intra-group income
- Against double taxation
- Within a group of companies
- Profit is taxed once
- Holding companies
- International groups
- Certain jurisdictions
- A minimum shareholding
- Holding period
- The nature of the subsidiary
How to use the regime
- 01Define the group structure
- 02Choose a jurisdiction with the regime
- 03Meet the participation conditions
- 04Build the holding company
- 05An efficient structure
What you need to know
- The participation exemption exempts income from shareholdings in companies
- Dividends and gains on the sale of shares are exempt
- It removes multiple taxation of profit within a group
- A key tool for holding companies
- It requires conditions to be met (shareholding, holding period)
Common mistakes
- Choosing a holding jurisdiction without such a regime
- Not meeting the minimum shareholding or holding period
- Ignoring the conditions for applying the exemption
- Not taking substance requirements for the holding company into account
- Assuming the exemption is automatic, without conditions
What this means for a BRIDGES client
We take the participation exemption into account when choosing a jurisdiction for your holding company: we choose a country with such a regime and ensure the conditions are met (shareholding, holding period, substance). That way dividends and gains within the group are lawfully exempt from repeated tax, and the structure remains efficient and robust under scrutiny.
Frequently asked questions
01 /What is the participation exemption?
A tax regime under which a holding company is exempt from tax on income from shareholdings in other companies — above all on dividends from subsidiaries and gains on the sale of shares.
02 /Why is such an exemption needed?
To avoid multiple taxation of the same profit within a group. The profit is taxed at the level of the subsidiary; repeated tax when dividends are passed up is removed.
03 /Who does this matter to?
Holding companies and international groups. The existence of a participation exemption is one of the main reasons for locating holding companies in certain jurisdictions.
04 /What conditions must be met?
Usually a minimum shareholding in the subsidiary, a holding period and a certain nature of the subsidiary. The conditions depend on the jurisdiction.
05 /Does the exemption apply automatically?
No, only when the regime’s conditions are met and, as a rule, the holding company’s real presence (substance) requirements. We help meet them.
06 /How do you choose a jurisdiction for a holding company?
Taking into account the participation exemption, the network of tax treaties and substance requirements. We choose a structure that lawfully and efficiently reduces the group’s burden.
See also
Read next
This material has undergone editorial review by BRIDGES.
Structuring a holding company?
We will choose a jurisdiction with a dividend exemption and build the holding company in compliance with the conditions — without repeated tax within the group.