Quick Answer
To be a member of a Qualifying Group under Article 26 of Federal Decree-Law No. 47 of 2022, an entity must be a UAE taxable person, hold or be held by at least 75% common ownership with the other group member, share the same financial year end, apply the same accounting standards, and not be an Exempt Person, a Qualifying Free Zone Person, or a business claiming Small Business Relief. Meeting these conditions lets group members transfer assets and liabilities between each other at net book value, with no immediate Corporate Tax on the gain, subject to a two-year clawback if group membership or the transferred asset leaves the group.
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What Qualifying Group Relief Is For
Article 26 exists to stop internal reorganisations within a corporate group from generating a tax bill on paper gains. If a parent company moves a fixed asset from one subsidiary to another as part of an internal reshuffle, no cash has left the group and no third party is involved, so taxing the unrealised gain at that point would penalise routine group housekeeping. Qualifying Group Relief allows the transfer to happen at net book value instead, with no gain or loss recognised for Corporate Tax purposes at the point of transfer.
This is a narrower relief than it sounds. It only applies to transfers of assets and liabilities between members that already satisfy every membership condition below, and it is not automatic. Both parties must elect for it to apply. It is also worth being precise about what Qualifying Group Relief is not: it does not consolidate the two entities into a single taxpayer, and it does not exempt the transferred value from tax permanently. It defers the tax point on that specific asset transfer until a later disposal outside the group, or until a clawback event occurs within the two-year window.
The Six Membership Conditions
1. Taxable Person Status
Both the transferor and the transferee must be UAE taxable persons. This includes UAE Resident Persons (entities incorporated in the UAE, or foreign entities effectively managed and controlled from the UAE) and Non-Resident Persons with a Permanent Establishment in the UAE. A non-resident entity earning only UAE-sourced income, without a Permanent Establishment, does not meet this condition and cannot be a qualifying group member.
2. The 75% Ownership Threshold
One of the following ownership structures must exist between the transferor and transferee:
- The transferor holds a direct or indirect ownership interest of at least 75% in the transferee, or
- The transferee holds a direct or indirect ownership interest of at least 75% in the transferor, or
- A third person holds a direct or indirect ownership interest of at least 75% in both the transferor and the transferee.
Indirect ownership held through a Qualifying Free Zone Person counts toward the 75% threshold, even though the Qualifying Free Zone Person itself cannot be a group member. Ownership held by unrelated third parties outside this structure is irrelevant to whether the threshold is met.
3. Matching Financial Year End
The transferor and transferee must have financial years ending on the same date. Where they do not, one of the entities can apply to the Federal Tax Authority to change its financial year end to align with the other before relying on the relief.
4. Same Accounting Standards
Both entities must prepare their financial statements using the same accounting standards. In the UAE, this typically means both apply full IFRS, or both apply IFRS for SMEs. A mismatch, one entity on full IFRS and the other on IFRS for SMEs, breaks this condition even if every other requirement is met.
5. Neither Party Is an Excluded Person
Certain categories of taxable person cannot be qualifying group members at all, regardless of ownership structure. These are covered in detail below.
6. An Election Is Made
Qualifying Group Relief does not apply automatically even where every structural condition is met. Both the transferor and transferee must elect for the relief in their Corporate Tax returns.
Who Is Excluded from Qualifying Group Membership
| Excluded category | Why it is excluded |
|---|---|
| Exempt Persons (Article 4) | Not subject to Corporate Tax, so tax-neutral transfer treatment does not apply to them |
| Qualifying Free Zone Persons (QFZPs) | Subject to a separate 0%/9% regime; direct group membership would create mismatches with mainland taxable persons |
| Entities claiming Small Business Relief | Small Business Relief already provides simplified treatment incompatible with group-relief mechanics |
A holding structure that includes a free zone entity is not automatically shut out of Qualifying Group Relief altogether. The QFZP itself cannot be a direct party to the relief, but its ownership interest can still be counted toward the 75% threshold between two mainland (or otherwise eligible) group members.
What Actually Transfers, and at What Value
Once membership conditions are met and the election is made, assets and liabilities transfer between the two members at net book value on the transfer date. Net book value is adjusted for prior depreciation or amortisation and for any unrealised gains or losses already recognised. No gain or loss is brought into either party’s taxable income at the point of transfer; the tax consequence is deferred, not eliminated, until a later disposal outside the group.
Example: Company A holds 90% of Company B, both are UAE Resident Persons with financial years ending 31 December and both report under full IFRS. Company A transfers office equipment with a net book value of AED 900,000 (market value AED 1,300,000) to Company B. Because the 75% ownership threshold, financial year, and accounting standards conditions are all met, and both companies elect for relief, Company A recognises no gain on the AED 400,000 difference between book and market value at the time of transfer. Company B records the equipment at the same AED 900,000 net book value going forward.
The Two-Year Clawback
Qualifying Group Relief is reversed if, within two years of the transfer:
- the transferor or transferee ceases to be a member of the qualifying group (for example, the 75% ownership threshold drops below 75%), or
- the transferred asset or liability is disposed of outside the group.
When a clawback event occurs, the original transfer is restated at its market value on the original transfer date, and the resulting gain or loss is brought into the transferor’s taxable income for the tax period in which the clawback event happens. Using the example above, if Company A sold its stake in Company B down to 60% fourteen months after the equipment transfer, the AED 400,000 deferred gain would become taxable in that later period.
Common Structuring Mistakes That Break the Conditions
Most failed Qualifying Group Relief claims do not fail because of one dramatic disqualifying event. They fail because of a structural detail that gets overlooked during routine group management. The most common issues we see are:
- Dilution below 75% after the transfer, but before the two-year mark. A funding round, a share buyback, or a partial exit that takes common ownership from, say, 80% to 70% triggers clawback even if it was not connected to the original transfer at all.
- Accounting standards drifting apart. A subsidiary that switches from IFRS for SMEs to full IFRS ahead of a planned listing, without the parent making the same change, quietly breaks the accounting standards condition.
- Treating a Qualifying Free Zone Person as a direct group member. The QFZP’s ownership can count toward the 75% threshold between two other members, but the QFZP cannot itself be a party to the relief.
- Assuming the relief applies without filing the election. Meeting every structural condition does not activate the relief. The election is a separate, affirmative step in the Corporate Tax return, and it is often missed on the first qualifying transfer a group makes.
Because the clawback window runs for two full years after the transfer, groups need a process for flagging any ownership change, entity exit, or accounting policy change that occurs within that window, not just at the point of the original transfer.
Qualifying Group Relief vs. Business Restructuring Relief
These two reliefs are frequently confused because both allow tax-neutral transfers between UAE taxable persons, but they answer different questions. Qualifying Group Relief asks whether the parties already have a 75% ownership relationship, and if so, permits individual assets and liabilities to move between them in any form of consideration. Business Restructuring Relief asks whether the transfer is being paid for mainly in shares, and if so, permits an entire business or an independent part of one to move, with no pre-existing ownership relationship required. For the full conditions and clawback mechanics of the other relief, see our guide to Business Restructuring Relief under Article 27.
A transaction between two 80%-owned group companies, paid entirely in shares, for an entire business division, could potentially qualify for both reliefs. In practice, businesses in that position should get the structuring and the elections reviewed together, since the two reliefs have separate clawback triggers that need to be tracked independently for two years.
Frequently Asked Questions
Does 75% ownership have to be direct?
No. The threshold can be met through direct ownership, indirect ownership, or a combination, including indirect ownership held through a Qualifying Free Zone Person.
Can a free zone company be a qualifying group member?
Not if it is a Qualifying Free Zone Person benefiting from the 0% regime. It is excluded from direct membership, though its ownership stake can still count toward the 75% threshold between two other eligible group members.
What happens if the two companies have different financial year ends?
One of them can apply to the Federal Tax Authority to align its financial year end with the other. Until the year ends match, the qualifying group condition is not met.
Related reading: if the financial year alignment or period itself is unclear, see our guide to the Corporate Tax period.
Is Qualifying Group Relief the same as forming a Tax Group?
No, and this is a common point of confusion. A Tax Group under Article 40 consolidates two or more UAE resident companies into a single taxable person for Corporate Tax filing purposes. Qualifying Group Relief under Article 26 is a separate relief that defers tax on asset transfers between related companies that remain separate taxable persons. See our guide to Tax Group formation for the consolidation route.
Does the relief apply automatically once the conditions are met?
No. Both the transferor and the transferee must actively elect for Qualifying Group Relief in their Corporate Tax returns; meeting the structural conditions alone is not enough.
What triggers the clawback besides selling the asset?
The ownership threshold dropping below 75% between the transferor and transferee within two years also triggers clawback, even if the transferred asset itself has not been touched.
Can Small Business Relief claimants join a qualifying group?
No. A business claiming Small Business Relief is excluded from qualifying group membership under Article 26, regardless of its ownership structure.
Does a change in ultimate ownership above the 75% level matter?
What matters for the ownership condition is the direct or indirect stake between the transferor and transferee themselves, or the common third-party stake in both. A change further up an ownership chain only matters to the extent it affects that 75% calculation between the actual group members involved in the transfer.
Do both parties need to keep records after the transfer is complete?
Yes. Both the transferor and transferee should retain records evidencing the ownership percentage, financial year alignment, accounting standards used, and the election itself for the full Corporate Tax record-keeping period of 7 years, not just until the two-year clawback window closes.
Tax Consultant Dubai
Expert tax advisory services in Dubai.
Get professional consultation from experienced tax specialists.
How Tax Consultant Dubai Can Help
Confirming qualifying group status requires checking ownership percentages, financial year alignment, accounting standards, and exclusion categories together, and getting any one condition wrong can invalidate the whole relief. Our team reviews group structures before you rely on Article 26 and tracks the two-year clawback window on your behalf.
Contact Tax Consultant Dubai today to confirm whether your group structure qualifies for tax-neutral asset transfers under Article 26.
