Summary of Business Restructuring Relief Under UAE Corporate Tax

The implementation of the new CT regime has led to significant changes in the overall business environment. The businesses are now expected to comply with the new regime and ensure the timely registration and payment of tax returns. There are still many clarifications required by the business entities pertaining to the implementation of the regime and its outcome. In order to demystify such complexions, FTA has been issuing multiple guides on the implementation of certain rules and guiding businesses to simplify the rules. One such guide that FTA recently issued included business restructuring relief. The guide focuses on providing a clear-cut idea of the eligibility criteria and further implementing the relief for the business. In this blog, we will shed light on the summary of the business restructuring relief.

What is Business Restructuring Relief?

Under the UAE corporate tax law, certain impacts of the tax pertaining to certain transactions under the restructuring process are not considered. As a normal course of action where there is a merger or acquisition and any demergers, there could be taxable losses or gains even though there is no change in the ownership of the business or retention of ownership of the restructured business. The FTA, with the motive of not hampering these restructuring transactions, has provided business restructuring relief by facilitating tax-neutral transactions. In order to avail of the relief, business owners and taxable persons must be eligible and meet certain criteria.

What are the Transactions Included Under the Relief?

The business restructuring relief mainly applies to the two main categories of transactions:

• Transactions where there might be a transfer of an entire business or an independent part of such business from a taxable person to another taxable person
• Transactions where there might be a transfer of an entire business from one taxable person or more to another taxable person and where the transferor ceases to exist.

Conditions to be Met for Getting Relief

There are certain criteria that must be met to be eligible for business restructuring relief. These conditions include the following:

• The transfer is conducted in compliance with the conditions implemented by the relevant UAE legislation.
• The transferor and the transferee both must be resident persons or else non-resident persons with a permanent establishment in the UAE.
• The transferor and the transferee must not be exempt persons or qualifying freezone persons in the respected tax period during which the restructuring of the business is conducted.
• The financial year of both the transferor and the transferee must end on the same date. This condition doesn’t require both parties to have the same financial year or tax period; it implies that the year must end on the same date.
• The same accounting standards must be used by the transferor and the transferee.
• The transfer must be undertaken for legitimate commercial or non-fiscal reasons that might have an economic reality.

Transactions Covered Under the Relief

The below-listed transactions are covered under the relief, which include:

• The conversion of a sole proprietorship business into an incorporated entity by a natural person is covered under business restructuring relief.
• Where there is an application made by the unincorporated partnership to the FTA for becoming a taxable person as per its own rights, it is covered under the business restructuring relief.
• Demergers of any independent part of businesses conducted legally are covered under the relief.
• Mergers with the subsidiaries are also covered under the relief.
• Where there is a transfer of the entire business to the transferee under a legal merger or demerger with universal title.

Transactions That Are Not Covered Under the Relief

Certain transactions listed below are not covered under the relief:

• Any assets or liabilities that are transferred to any other taxable person due to the liquidation of the concerned transferor
• Where there is a merger of the subsidiary with its parent, the share of the said subsidiary will be cancelled by law.
• The transaction includes the transfer of a business or its independent part to a wholly owned subsidiary or to the parent without any issue of shares.

How can CDA serve you?

CDA, being one of the leading accounting and auditing firms in Dubai, UAE, has been serving its clients with premium auditing and accounting services, along with tax consultation, for more than a decade. The experts at CDA, being well aware of the new tax regime and its complexities, can provide your business with the required assistance to get multiple tax benefits like exemptions, reliefs, and deductions. Our team of personalised tax advisors can serve you with premium tax services and ensure compliance with the regulations of the FTA.

To learn more about our tax services, approach our team now.