Corporate groups often manage their operations through multiple businesses, each with a parent company and subsidiaries. To optimize tax compliance costs and responsibilities, these companies can form tax groups. The UAE’s new corporate tax regime, effective from June 1st, 2023, allows taxable persons to create tax groups and benefit from Group Relief and Restructuring Relief in the UAE Corporate Tax Regime.. Corporate tax consultants in Dubai can provide guidance on the rules governing the formation of corporate tax groups.
Group Relief under the UAE Corporate Tax
Businesses frequently undergo reorganizations or restructuring to enhance operational efficiency or adapt to economic changes. However, without targeted tax rules, such restructuring within a group may trigger tax liabilities when gains on assets or liabilities are transferred, even though there is no change in ultimate ownership.
The proposed UAE corporate tax regime offers a solution by allowing companies to reorganize their businesses without incurring unnecessary tax charges. The regime proposes an exemption or deferral of corporate tax for asset or liability transfers between members of a tax group. It also permits tax-neutral reorganization transactions, such as mergers, where no taxable gain or loss is triggered.
Intra-group Transfer of Assets and Liabilities
The new corporate tax regime in the UAE allows for intra-group transfer relief for assets and liabilities transferred between UAE resident companies that are at least 75% commonly owned. The assets and liabilities must remain within the same group for at least three years to avail this relief. With intra-group relief, the relevant assets and liabilities are treated as being transferred at their tax net book value, eliminating the need to account for any gain or loss in the transferor and transferee company’s taxable income.
Restructuring Relief in the UAE Corporate Tax
The UAE corporate tax regime provides exemptions or deferrals of taxation when a whole business or independent parts of a business are transferred in exchange for shares or ownership interests. This restructuring relief facilitates mergers, spin-offs, and other corporate restructuring transactions.
For example, if an individual transfers their business to a newly incorporated company in exchange for shares, they can avail corporate tax exemption on any gains from the transfer. The acquiring company can also maintain the transferor’s existing tax basis in the transferred assets and liabilities. Assets and liabilities involved in qualifying restructurings are considered transferred at their tax net book value, thereby avoiding the need to report any gain or loss for calculating taxable income.
Clawback of Restructuring Relief in the UAE Corporate Tax
Can the Authority Claw Back a Restructuring Relief in the UAE Corporate Tax? If a business is subsequently transferred to a third party within three years of restructuring, the restructuring relief will be clawed back. In this case, any gain or loss triggered by the initial transfer will need to be calculated and included in the tax return for the tax period of the third-party disposal.
Consult with Top Corporate Tax Consultants in Dubai, UAE
As the implementation of the UAE Corporate Tax Law draws nearer, companies should start their tax preparation. Alliance Prime Accounting & is among the best corporate tax consultants in Dubai, offering services such as CT Assessment & Advisory, CT Compliance, and CT Agent Services for representing clients to the Federal Tax Authority (FTA) in the UAE. Availing Alliance Prime’s corporate tax consulting services will ensure compliance and help businesses avoid penalties. Get in touch with the CT experts consultants at Alliance Prime for reliable tax solutions.
Why is Alliance Prime the best Tax Consultancy in Dubai?
Alliance Prime is a leading provider of auditing, accounting, taxation, and advisory services in the UAE. Our expert team will guide you through the complex laws and regulations of UAE, including Corporate Tax, VAT, Excise Tax, Accounting and Bookkeeping, ESR, Financial Advisory, ERP, etc. We stay up-to-date with the latest changes in laws and regulations in the UAE. If you’re looking for reliable and professional auditing, accounting, taxation, and advisory services in the UAE, look no further than Alliance Prime.