Restructuring Relief for Businesses under Corporate Tax is a process to reform the company’s structure by enhancing the proficiency of business operations. Under Article 27 of the UAE Corporate Tax Law, profits and losses are not added in case the transfer nature is of business structuring. Thus, it is advisable for taxable persons to seek the services of corporate tax consultants in the UAE to seamlessly implement tax standards and stay compliant.
Qualifying forms of transfer
The transfer could be any of the following forms to qualify as a corporate restructuring:
- When a transferor (Taxable Person) transfers all or a portion of its company to the transferee (another Taxable Person),
- A person who will become a Taxable Person as a result of the transfer or another person in exchange for stock or other ownership interests in the Taxable Person (the transferee) or partially sold Business.
Conditions for Restructuring Business
The consideration of being a taxable person will not be further available to the transferor. To be qualified for business restructuring, the conditions are mandatory to be satisfied as mentioned:
To align with the UAE laws and the satisfaction mandatory
conditions, the business will be considered as “Restructuring” as stated below:
- The taxable person
- Grant of tax credit
- The taxpayer can apply for the restructuring benefit in accordance with the law if he/she meets all of the requirements set out in Art. 27 of the corporate Law.
Restructuring Tax Advantages
Under statutory provisions of the United Arab Emirates Taxation, the following corporate restructuring tax advantages are available to taxpayers as given below: -
- Recording netbook: The assets and liabilities transferred must be recorded at their net book value to avoid recognizing a gain or loss in the books of the parties to the transaction. Consequently, the taxable income of the transaction would be zero, i.e. H. The taxable income of that transaction would be nil.
- Value of treasury shares and units – The value of treasury shares and units received by the transferor pursuant to subparagraph (b) of the transfer shall not exceed the net book value of the transferred share and units less the amount of other consideration received from the assignor, to ensure that neither party to the transaction posts a loss or gain on their books. Therefore, the taxable income of this transaction would be ZERO
- Treatment of tax loss carryforwards: - If the seller had an unused tax shortfall prior to the liquidation period in which the transfer occurred, the transferee may transfer it. However, this can be linked to certain conditions by the Minister.
- In the case of a transfer of an independent part of the company, the transferee can carry forward tax losses only if they are reasonably attributable to that independent part of the company.
Revocation of tax benefits
Revocation of tax benefits granted to the taxpayer in the case of corporate restructuring
- The corporate reorganization tax exemption may be revoked if any of the following occurs within a two (2) year period:
a) If the shares or quotas of the transferor or the transferee are utilized in any of the given below forms:
- Partially /wholly sold to a person who does not belong to the same Taxpayer Qualification Group
b) If there is a successor:
- Transfer of business or independent branch of the business; OR
- Transfer of business or independent branch of business.
In either case, for the purposes of calculating the taxpayer's taxable income, the transfer is deemed to have been made at market value on the date of the transfer
- Any resident entity including an individual
- Any non-resident entity with a permanently established office in UAE
- No exemption to the taxable persons under UAE Corporation Tax
- Free zone qualifying person
- under UAE Corporation Tax
- Both entities have the same financial year
- Both entities have the same date of ending of the financial year
- Both entities have the same accounting standards in the preparation of tax period statements
- There would be a lawful commercial reason for the transfer
- There may be other than financial reasons
- Economic activities startup in UAE
Transfer to a person who is not a taxpayer or not in the ambit of the tax net
There may be such circumstances/ situations where interests, ownership, or shares are transferred to someone who is not the Taxable Person.
Taxpayer relief is given upon meeting the requirements of business restructuring
The Taxable Person may request business restructuring relief in accordance with the Law's provisions if it is able to meet all of the requirements outlined in Article 27 of the UAE Corporate Tax Law. The company restructuring reliefs that are offered to Taxable Persons under UAE Corporate Tax Legislation. Assets and liabilities that have been transferred must be considered at net book value in order to prevent any gains or losses from being recorded in the accounting records of the parties to the transaction. As a result, the transaction's taxable income would be zero. Thus, it is advisable for taxable persons to seek the services of top Corporate tax consultants in the UAE to seamlessly implement tax standards and stay compliant.
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.