Updated
GL-P-04
Glossary · Taxes and residency
Participation exemption - relief from tax on a holding company's dividends
Participation exemption — the exemption from tax of dividends and gains from stakes in subsidiaries, a key tool for holding companies.
01 / In 30 seconds
The short answer
- 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
02 / In plain words
What Participation exemption means
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.
A case from practice
An entrepreneur accumulates the dividends of several subsidiaries in a holding company. By locating the holding company in a jurisdiction with a participation exemption and meeting the conditions on shareholding and holding period, they avoid repeated tax on dividends within the group. The profit is taxed once — at the level of the subsidiaries.
Where the exemption matters
- Locating a holding company
- Structuring a group of companies
- Accumulating dividends from subsidiaries
- Selling shares in subsidiaries
- International tax planning
- Choosing a jurisdiction for a holding company
03 / What it covers
What matters about the participation exemption
What is exempt
- Dividends from subsidiaries
- Gains on the sale of shares
- Intra-group income
Why
- Against double taxation
- Within a group of companies
- Profit is taxed once
Who it is for
- Holding companies
- International groups
- Certain jurisdictions
Conditions
- A minimum shareholding
- Holding period
- The nature of the subsidiary
04 / How it works
How to use the regime
Define the group structure
Which subsidiaries, where, and what stakes.
Choose a jurisdiction with the regime
A country with a participation exemption and tax treaties.
Meet the participation conditions
Minimum stake, holding period, the subsidiary's profile.
Build the holding company
Registration, an office and management in the holding's country.
An efficient structure
Dividends within the group are not taxed twice.
05 / Key facts
What you need to know
01What is exempt
Dividends and share sales
A holding company's income from subsidiaries: dividends and gains on selling shares.
02Why
Profit taxed once
Profit is taxed at the subsidiary. The regime removes a second tax when dividends move up to the holding.
03Conditions
Stake and holding period
Usually a minimum stake in the subsidiary and a minimum holding period. The subsidiary's profile matters too.
04Where it exists
Several EU countries and others
The regime is one of the main reasons to place a holding in a particular jurisdiction.
Common mistakes
Choosing a holding country without the regime
Compare regimes and tax treaties before registering.
Missing the stake or holding period
Check the regime's conditions before buying or selling shares.
Assuming the exemption is automatic
Meet the regime's conditions and the substance requirements for the holding.
06 / Expert advice
How to prepare in advance
When structuring a group, the holding company is located in a jurisdiction with a participation exemption and the regime’s conditions are checked in advance: the minimum shareholding, holding period and the nature of the subsidiaries. Requirements for real presence (substance) are taken into account. Then dividends and gains within the group are lawfully exempt from repeated tax, and the structure remains efficient and robust.
What we do for you. 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.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
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.
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.
Holding companies and international groups. The existence of a participation exemption is one of the main reasons for locating holding companies in certain jurisdictions.
Usually a minimum shareholding in the subsidiary, a holding period and a certain nature of the subsidiary. The conditions depend on the jurisdiction.
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.
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.
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