Group Relief & Restructuring Relief Under Corporate Tax

GROUP RELIEF AND RESTRUCTURING RELIEF UNDER CORPORATE TAX UAE

Businesses in the UAE have the choice to establish a fiscal unity or tax group for tax reasons. Due to the ability of one company's tax losses to lower another company's taxable income, companies are taxed on a consolidated basis under this tax group. As a result, using tax losses together should be simpler. Companies can create tax groups under the UAE corporate tax framework, which will go into force in June 2023.

HOW A TAX GROUP IS TREATED UNDER CORPORATE TAX?

Under the UAE's corporate tax framework, the tax group will be classified as a single taxable person. The parent firm will handle the administration and payment of corporation tax on behalf of the group.

This indicates that the fundamental exemption limit will impose once, regardless of the firms involved. But that the final law will provide additional clarity.

WHAT IS CORPORATE TAX GROUP RELIEF FOR THE COMPANIES?

Businesses reorganize their operations to increase operational effectiveness, accommodate economic changes, or pursue other corporate goals.

Without specific tax regulations, restructuring or reorganizing within a group may cause a tax obligation to arise upon the realization of gains on transferred assets or liabilities.

Given that the firm or transferred assets' or assets' ultimate owners remain unchanged, this is regarded as undesirable.

The proposed UAE corporate tax policy will provide for an exemption or deferral of CT in respect of the transfer of assets or liabilities between members of a group, recognizing the significance of allowing firms to reorganize themselves without incurring an unwarranted tax penalty.

Additionally, the corporate tax system will permit some business reorganization transactions such as mergers, to carry out on a tax-neutral basis, resulting in no taxable gain or loss.

So basically, in accordance with the proposed corporate tax regime, businesses will be able to avoid or postpone paying corporation tax on transfers of assets or liabilities among group members.

This clause enables corporate reorganizations without resulting in an unnecessary tax levy. Additionally, the regime will permit some corporate reorganization activities, such as mergers, to carry out on a tax-neutral basis to remove taxable profits or losses.

INTRA-GROUP TRANSFER OF ASSETS AND LIABILITIES

Transfers of assets and liabilities between UAE-based group companies that share at least a 75% ownership interest are excluded from the CT requirement as long as they are held for at least three years from the date of transfer.

When intra-group relief is requested, the relevant assets and liabilities are acknowledged as having been transferred at their tax net book value, shielding both the transferor and the transferee business from being held accountable for the gain or loss when calculating their taxable income.

Any gain or loss that would have occurred upon the first transfer must be computed and included in the transferor's tax return in the tax period. In which the applicable requirements for intra-group relief ceased to be satisfied.

WHAT IS RESTRUCTURING RELIEF?

To support mergers, spin-offs, and other corporate operations, the UAE corporate tax plan would exclude or allow a deferral of taxes if an entire company, or distinct parts of a business, are transferred in return for shares or other ownership interests.

The transferred assets and liabilities will have the transferor's existing tax base available to the acquiring company. Any transfer-related benefits to the natural person will be exempt from corporation tax.

Assets and liabilities that are transferred as part of a qualified reorganization will be deemed to have been transferred at their tax net book value to avoid reporting for a gain or loss for calculating taxable income.

Any restructuring relief will be "clawed back" if the business is later sold to a different entity within three years of the restructuring.

WHAT ARE RESTRUCTURING TRANSACTIONS?

A restructuring transaction is any action that a firm or one of its group entities takes to restructure its business operations. Examples of restructuring transactions include as follows:

• acquisitions and mergers
• spin-offs or demergers
• transfer or sale of all or a portion of a firm to another company from the assets of a sole proprietorship or unincorporated business

IN WHAT WAYS ARE RESTRUCTURING TRANSACTIONS ADDRESSED AS PER UAE CORPORATE TAX?

• In a qualified reorganization, transferred assets and/or liabilities will be recognized as being transferred at their tax net book value.
• Neither a gain nor a loss from such a transfer is included in one's taxable income.
• Within three years of the restructuring, if such assets or liabilities are transferred to a different party, the gain or loss that would have occurred upon the first transfer will be determined.
• Deemed taxable income in the year of transfer to a third party

Conclusion

Companies can create tax groups under the UAE corporate tax framework, which will go into force in June 2023. Avoid penalties by ensuring corporate tax compliance with the help of professional Tax Experts in Dubai, UAE.