How does the participation exemption work?

Capital gains derived from the sale of shares are tax free if the shares that are sold are part of fixed assets, the seller company owns at least 10% of the share capital of the entity and the shares have been held for at least one year.

However this does not apply to real estate companies, housing companies or companies whose main function is to own real estates.

If the capital gain from the sale of shares is tax free, correspondingly the capital loss from the sale is non-deductible. A fixed asset is an item that is not purchased with the intent of immediate resale, but rather for productive use within the entity.