Business Restructuring Relief in UAE

Summarise with AI

Business restructuring relief is covered under Article 27 of the UAE Corporate Tax that when a qualifying business is transferred between two tax-paying entities in return for shares or an ownership stake, there won’t be any immediate tax on the gains or losses from this transfer. To keep this tax relief, the shares or ownership received must be held for at least two years. The entity giving away the business (the transferor) must choose this type of transfer specifically, and both the transferor and the recipient (transferee) must follow the general rules set out for such transactions.

Criteria for Business Restructuring Relief and Qualifying Group UAE

If all of the following conditions are met, a transaction may qualify for both business restructuring relief and qualifying group relief:

• Access to Transferor’s Company: A Transferee may have access to all or part of a Transferor’s company. The original owner, the transferor, will continue to operate once ownership is transferred.
• Payment for Transfer: The new owner (Transferee) or a third party with a significant (at least 50%) direct or indirect investment in the new owner’s business will pay for this transfer with shares or stakes in the company.
• Qualification Criteria: Both the former and new owners are members of an established group that qualifies for such transactions.
• Business Restructuring Relief: In this case, the Transferor may choose to seek Business Restructuring Relief. Qualifying Group Relief applies to assets and liabilities transferred as part of a corporate restructuring.
• Terms of Transaction: If any elected relief, such as company restructuring or qualified group relief, has been granted, the terms of the transaction shall apply.

Tax Treatment Reversal in Corporate Restructuring Relief UAE

When an owner chooses to apply both qualified group relief and business restructuring relief during a restructuring procedure and either relief results in a clawback scenario, the original tax treatment—which does not recognize a gain or loss—is reversed.

Leaving the Qualified Group

The original and new owners must leave an approved group within two years after applying for qualifying group relief; even if the company restructuring relief is not reimbursed, the original no-gain or loss tax status would be lost.

Gain/Loss Treatment

If the Transferee transfers any business or independent portion of the business within two years of a restructuring that resulted in Business Restructuring Relief, no gain or loss treatment will apply.

Qualifying Group Relief on Realization Basis UAE Corporate Tax

If the relevant conditions are met, a taxable business that prepares financial statements using the accrual method may choose to account for earnings and losses using the realization method.

Upon election in the first tax period, financial statements revision is important to ensure that the determination of taxable income is as per the realization basis.

Ownership of Qualifying Group Members Under Corporate Tax

To apply the transitional rules, ownership of the relevant assets by a taxable person must include ownership by any other member of the qualified cohort.

Techniques for Estimating Excluded Gains on Real Estate

Real estate non-taxable gains can be computed in two ways including valuation technique and time apportionment method.

Methods for Calculating Intangible Asset Excluded Gains

Intangible assets can only be evaluated using the time apportionment method when calculating gains on property and intangible assets that are exempt from tax.

Exclusion From Financial Liabilities or Assets

A single method is used to calculate the non-taxable gain or loss for financial assets and obligations.

Application of Transitional Relief UAE Corporate Tax

To qualify for transitional relief, a taxpayer must decide to change their taxable income during the first tax period.

Seek Tax Consultants in UAE for Corporate Tax Restructuring Relief

For Restructured Businesses to avail Tax Relief in compliance with the Corporate Tax Law in UAE, it is advisable to seek the services of top Tax Consultants in UAE. You may also review Corporate Tax in Dubai, Tax Group UAE, or contact us for professional assistance.