The existence of a participation exemption under a local tax regime enhances a jurisdiction's attractiveness as a holding company location, although other factors such as the presence of a network of double taxation treaties are relevant.
This reduction of taxation generally has some limitations as to the nature of income on which tax is reduced and the minimum level and period of ownership of the subsidiary.
Most systems require that the parent company must own some significant portion (e.g., 25 percent) of the equity of the subsidiary in order to qualify for participation exemption.
[citation needed] A few systems require an advance ruling by tax authorities in order to benefit from participation exemption.
Some jurisdictions offer alternative forms of tax relief which are designed to achieve similar results to a participation exemption.