Reliefs under UAE Corporate Tax Law

Reliefs under UAE’s Corporate Tax Law – Introduction

There are certain reliefs provided to Taxable Persons under the UAE Corporate Tax Law for transfer of assets and liabilities between a Qualifying Group and for transfer of shares and ownership interest in case of Business Restructuring. After fulfilling the requisite conditions to meet the criterion, the relief can be claimed by the Taxable Persons, failing which, can result in withdrawal of such relief granted to the Taxable Persons.

Article 26 – Taxability of Gains or Losses arising on Transfer of Assets and Liabilities between Qualifying Group Entities under the UAE Corporate Tax Law

In certain cases, there may be a transfer of assets or liabilities between two Taxable Persons. Where such transfer is between independent parties, the gain or loss arising from such transfer would be included in Taxable Income. However, when there is transfer of assets or liabilities between Taxable Persons within the same Qualifying Group, then the gain or loss is not included in Taxable Income.

In order to claim exemption, the Taxable Persons should be within the same Qualifying Group. For this purpose, the following needs to be considered: –

Conditions to meet the Qualifying Group criterion for claiming Reliefs under UAE’s Corporate Tax Law

Two Taxable Persons would be considered to be part of the same Qualifying Group, if all of the following conditions are satisfied:

1. The Taxable Persons are juridical persons that are:
   1. Resident Persons, or
   2. Non- Resident Persons that have a Permanent Establishment in the UAE.
2. Ownership criterion:
   1. One Taxable Person has minimum 75% of direct ownership interest in the other Taxable Person
   2. One Taxable Person has minimum 75% indirect ownership interest in the other Taxable Person
   3. A third person has minimum 75% ownership interest, directly or indirectly, in both the Taxable Persons.
3. None of the Taxable Persons are Exempt Persons under the UAE Corporate Tax Law
4. None of the Taxable Person are Qualifying Free Zone Persons under the UAE Corporate Tax Law
5. The Taxable Persons should follow the same Tax Period.The Taxable Persons should prepare their respective Financial Statements in accordance with the same accounting standards. e

Relief when two Taxable Persons form part of the same Qualifying Group

If the Taxable Persons apply for  relief from corporate taxation under the UAE CT law on transfer of assets or liabilities within the Group, then such transaction should be recorded in the book of accounts of both the Taxable Persons in the following manner the following shall be considered:

1. Transfer on Net Book Value: The asset or liability that has been transferred within the Group shall be treated at net book value so that no gain or loss is recorded in the accounting books of the transferor company.
2. Consideration paid or received: Consideration received or paid against the transfer should be equal to the net book value of transfer.

Withdrawal of Relief granted from Taxation on Transfer of Assets or Liabilities

The relief from taxation on transfer of assets or liabilities granted to a taxpayer, will be withdrawn, if within two (2) years from the date of the transfer :

1. The Asset or Liability received is transferred by the transferee outside the Qualifying Group; or,
2. A Taxable Person which is a member of the Qualifying Group ceases to be a part of the same Qualifying Group.

In any of these situations, the transfer shall be deemed to have taken place at Market Value on the date of such transfer, for calculating the Taxable Income of both the Taxable Persons.

Want to know if you can claim Corporate Tax Relief under the UAE CT Law?

Article 27- Business Restructuring Reliefs

What is Business Restructuring under the UAE Corporate Tax Law?

Business restructuring refers to the process of reshaping the structure of a company to increase profits of the business or to enhance efficiency of business operations.

Under the UAE Corporate Tax Law, no gains or losses will be included in the Taxable Income, when the transfer is of the nature of Business Restructuring. To determine the transfer as business restructuring, the transfer can be any of the following:

1. When a Taxable Person (transferor) transfers its whole or an independent part of the business to:
   1. A Taxable Person, or;
   2. A person, who after such transfer, will become a Taxable Person
      in exchange for ownership interest or shares in the Taxable Person (transferee), or;
2. When one or more of the Taxable Person (transferors) transfers their whole or an independent part of the business to:
   1. A Taxable Person or;
   2. A person, who after such transfer, will become a Taxable Person,
      in exchange for ownership rights or shares in the Taxable Person (transferee). However, the transferors shall cease to be Taxable Persons after such a transfer.

Conditions to meet the criterion of Business Restructuring Relief provided under the UAE Corporate Tax Law

The transfer will be considered as ‘Business Restructuring’ if all of these conditions are fulfilled:

1. The transfer is in consonance with the laws of the UAE and satisfies the conditions;
2. The Taxable Person is:
   1. A Resident Person, or
   2. A Non-Resident Person that has a Permanent Establishment or PE in the UAE;
3. None of the Taxable Persons are Exempt Persons under the UAE Corporate Tax Law;
4. None of the Taxable Persons are Qualifying Free Zone Persons under the UAE Corporate Tax Law;
5. Both follow the same Financial Year, with the Year ending on the same date;
6. Both the Taxable Persons follow the same accounting standards while preparing the Financial Statements of the relevant Tax Period;
7. The transfer is for:
   1. A valid commercial reason or;
   2. A non-fiscal reason,

and is able to establish its economic substance within the UAE.

Transfer to a Person other than a Taxable Person

Furthermore, there can be circumstances where there is a transfer of shares or ownership interest to a person who is not the Taxable Person, such as:

1. Where shares or ownership interest is received by a person who is not the transferor.
2. Where shares or ownership interest is granted or issued by a person who is not transferee
3. Where no shares or ownership interest is received by a Taxable Person who is a partner in an Unincorporated Partnership, where such Partnership is treated as a Taxable Person..

In all the three above mentioned scenarios, although shares or ownership interest of a Taxable Person is not being transferred to the other Taxable Person, it shall constitute a Business Restructuring and the other Taxable Person (which should have received the shares or ownership interest) can still claim Business Restructuring Relief under the provisions of Article 27 of the UAE CT Law.

Relief provided to Taxable Person on complying with conditions of Business Restructuring

If the Taxable Person is able to fulfil all the conditions prescribed under Article 27 of the UAE CT Law, it can claim business restructuring relief as per the provisions of the Law.. Following are the business restructuring reliefs available to a Taxable Person under the UAE Corporate Tax Law:

1. Treatment of Assets and Liabilities at Net Book Value: Assets or liabilities that have been transferred are to be treated at net book value so that no gain or loss is to be recorded in the accounting books of the transacting parties. Hence the Taxable Income on such transaction would be NIL.
2. Treatment of Value of Shares and Ownership Interest- Value of the share and ownership interest received by the transferor in part (a) of the transfer should not be more than the net book value of the assets or liabilities transferred, subtracting the amount of any other consideration received by the transferor, thus again registering no loss or gain in the accounting books of the transacting parties. Hence the Taxable Income on such transaction would be NIL.
3. Value of Shares and Ownership Interest- Value of the share and ownership interest received by the transferor in part (b) of the transfer should not be more than the net book value of the share and ownership surrendered, subtracting the amount of any other consideration received by the transferor, ensuring that neither transacting parties register a loss or gain in their book of accounts. Hence the Taxable Income on such transaction would be NIL.
4. Treatment of Unutilised Tax Losses –
   1. If before the Tax Period in which the transfer was completed, the unutilized Tax Losses are incurred by the transferor, it can be carried forward by the transferee. Though, this can be subject to certain conditions by the Minister.
   2. In case of transfer of any independent part of the business, the unutilised Tax Losses can be carried forward by the transferee only if they can be reasonably associated with such independent part of the business.

Withdrawal of Relief granted to Taxable Person from taxation of Business Restructuring

The relief from taxation of Business Restructuring can be withdrawn if within two (2) years, if the following happens:

a) If the shares or ownership interests of the transferor or transferee are:

• transferred,
• sold or
• disposed of (whether entirely or in part)

to someone who is not a part of the same Qualifying Group to which the Taxable Persons belongs

b) If there is a subsequent:

• Transfer of the business or independent part of the business; or
• The disposal of the business or independent part of the business.

In any of these situations, the transfer shall be deemed to have taken place at the Market Value on the date of such transfer, for calculating the Taxable Income of the Taxable Persons.

Want to know if you can claim Business Restructuring Relief under the UAE CT Law?