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Reliefs under the UAE Corporate Tax Law

The UAE Corporate Tax Law offers various reliefs to Taxable Persons concerning the transfer of assets and liabilities within a Qualifying Group, as well as the transfer of shares and ownership interest during Business Restructuring. These reliefs are contingent upon meeting specific conditions outlined in the law. Once the necessary criteria are satisfied, Taxable Persons can claim the relief. However, it is important to note that failure to meet the requirements may result in the withdrawal of the granted relief for the Taxable Persons. 

Transfers within a Qualifying Group (Article 26) 

When two taxable persons, who are part of the same qualifying group, transfer assets or liabilities between them, no gain or loss needs to be considered when determining their taxable income. To be considered members of the same qualifying group, the following conditions must be met: 

   1. Qualifying Group Criterion:

The taxable persons involved are juridical persons that are either residents in the state or non-residents with a permanent establishment in the state. 

   2. Ownership Interest Criterion:

There are three potential ownership interests that can establish the Qualifying Group criterion: 

  • Either of the taxable persons directly or indirectly owns at least 75% of the other taxable person, or 
  • A third party has a direct or indirect ownership interest of at least 75% of both taxable persons.  

According to the Ministerial Decision No. 132 of 2023 on Transfers within a Qualifying Group, an ownership interest, for the purpose of determining membership in the Qualifying Group, encompasses various instruments, including but not limited to: 

   a) Ordinary Shares.

   b) Preferred Shares.

   c) Redeemable Shares.

   d) Membership and Partner Interests.

   e) Other types of securities, capital contributions, and rights that grant the owner the entitlement to receive profits and liquidation proceeds.

  3. Exempt Persons and Qualifying Free Zone Persons:

None of the taxable persons involved should be classified as exempt persons or qualifying free zone persons according to the UAE Corporate Tax Law. 

   4. Same Tax Period:

The taxable persons must have the same tax period for their financial reporting. This means their financial years should end on the same date. 

5. Consistent Accounting Standards:

Both taxable persons should prepare their financial statements in accordance with the same accounting standards. 

By fulfilling these conditions, the taxable persons within the qualifying group can take advantage of the reliefs provided under the UAE Corporate Tax Law. It is crucial to comply with these requirements, as failure to do so may lead to the withdrawal of the granted reliefs. 

Read More: Corporate Tax in UAE : All You Need to Know

Relief for Transfers within the Qualifying Group 

When two taxable persons, who are members of the same qualifying group, intend to claim relief from corporate taxation for the transfer of assets or liabilities within the group, the following accounting treatment should be applied: 

  1. Transfer at Net Book Value: 

The asset or liability being transferred within the group should be recorded at its net book value. This means that no gain or loss should be recognized in the accounting records of the transferring company. Both the transferor and transferee companies should reflect the transfer in their books at the net book value. 

  2. Consideration Paid or Received: 

The consideration paid or received for the transfer should indeed be equal to the net book value of the asset or liability being transferred. This ensures that the consideration aligns with the recorded value in the transferor company's books. 

By adhering to these accounting principles, the taxable persons within the qualifying group can avail themselves of the reliefs under the UAE Corporate Tax Law for transfers within the group. It is crucial to accurately record the transfers and ensure that the consideration matches the net book value of the transferred asset or liability. 

Withdrawal of Granted Relief on Transfer of Assets or Liabilities 

The reliefs under the UAE Corporate Tax Law for the transfer of assets or liabilities within a qualifying group may be withdrawn under certain circumstances if they occur within two (2) years from the transfer date: 

  1. Transfer outside the Qualifying Group:

If the asset or liability received by the transferee is subsequently transferred outside the qualifying group, the relief granted for the initial transfer will be revoked. In such a scenario, the transfer will be treated as if it occurred at the market value on the date of the subsequent transfer. This means that the taxable income of both the transferor and transferee will be determined based on the market value rather than the net book value. 

It is crucial to adhere to the requirements and conditions specified in the UAE Corporate Tax Law to ensure that the granted relief is not withdrawn. 

  2. Cessation of Qualifying Group Membership:

If a taxable person, who is a member of the qualifying group at the time of the initial transfer, ceases to be part of the same qualifying group within the two-year period, the relief granted for the transfer will indeed be withdrawn. In this situation, the transfer will be treated as if it took place at the market value on the date of ceasing the qualifying group membership. As a result, the taxable income of both the transferor and transferee will be recalculated based on the market value. 

In both scenarios mentioned above, the withdrawal of relief entails a revision in the tax treatment of the transfer, with the taxable income of the relevant parties being recalculated using the market value as the basis. 

Taxpayers should be aware of these conditions to ensure compliance and avoid the potential withdrawal of the reliefs under the UAE Corporate Tax Law granted for the transfer of assets or liabilities. 

Need expert Corporate tax consultant assistance in Dubai? Farahat & Co. is here for you. To obtain accurate information regarding reliefs under the UAE Corporate Tax Law in light of the new corporate tax law, it is advisable to consult and seek guidance from a qualified tax consultant or advisor who is familiar with the updated regulations in your jurisdiction. 

Read More: Corporate Tax in UAE for Free zone Companies

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.
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