All About the Conditions to Qualify for Business Restructuring Relief Under UAE CT

The introduction of the CT has made it mandatory for all eligible entities to get themselves registered under the regime. Failing to register within the given timeline might result in penalties worth AED 10,000. Businesses getting registered can avail of multiple reliefs and deductions if they qualify for such reliefs. The UAE CT has been trying to provide a level playing field for the entities so that they are not burdened by the new regime.

In order to simplify the compliance framework and guide the entities, the FTA has lately released a guide on business restructuring relief, enabling businesses to understand the relief and claim if they fall under the category. In this blog, we shed light on certain conditions that are to be met by such entities.

Conditions to be met under the business restructuring relief

There are certain conditions laid out by the authorities that must be met in order to be eligible for relief. The conditions include the following:

1. The condition of being legally compliant

The businesses that are undertaking the restructuring process must carry out the process in accordance with the applicable legislation of the UAE. Even though there is no particular regulation under the CT law for business restructuring, this condition requires the entities to comply with the regulations of the UAE. The condition might be any UAE federal or emirate laws and regulations. For example, if AB and CA is undergoing a merger, the entity must meet certain regulatory requirements as per Articles 285 to 293 of the Commercial Companies Act in order to be eligible for relief.

You can also read: What Is the Clawback of The Qualifying Group Relief?

2. The condition pertaining to taxable persons

As per this condition, the person who transfers the business, also known as the transferor, and the person to whom the transfer is made, also known as the transferee, must be a resident person, or else if they are non-resident persons, they must have a permanent establishment in the UAE. This condition is laid out to ensure that the profits or losses that arise under the business restructuring relief are within the purview of the CT regime.

3. The condition of an exempt person and a qualifying free zone person

Under the third condition of being eligible for business restructuring relief, the transferor and the transferee must not be exempt persons or qualifying freezone persons. Those entities that are freezone persons but are not under the purview of the qualifying freezone person are also eligible for business restructuring relief under the law. Being established or registered in a free zone might not be a barrier to claiming the relief. If the transferor or the transferee becomes the exempt person or the qualifying freezone person in the tax period after the one in which the business restructuring has occurred, then the entities are also eligible for the relief, and this might not result in any clawback of the relief claimed.

4. Condition related to the financial year

The transferor’s and the transferee’s financial year must end on the same date. The entities that are eligible for relief must meet the said condition, as it will ultimately result in their tax period ending on the same date. If both parties meet the other condition but not the one related to the financial year, then they must change the end date of the financial year to be the same as each other. The change of date can be done by making an application to the FTA, ensuring that they meet the following further conditions:

• The taxpayer has not filed any of the tax returns for the concerned period, which is to be changed.
• The tax period must not be extended beyond 18 months or reduced to less than 6 months, where 
• The taxable person who has applied for the shortening of the tax period must not be in respect of the current or prior tax period.
• The application was made before the lapse of six months, starting from the end of the original tax period of the entity.

This condition does not mean the transferor or the transferee have the same financial year or tax period; the end date of the financial year of both must be the same. If either party has a longer or shorter financial year as compared to the other, the condition for the relief is still considered to be met if the business restructuring transaction takes place in a financial year in which the end date is the same for both.

5. Condition related to the accounting standard

The transferor and the transferee must follow the same accounting standards. As per the UAE Corporate Tax law, the entities are required to follow the IFRS standards. For entities whose revenue does not exceed AED 50 million, they are to use the IFRS standard for SMEs. If one of the parties uses the IFRS standard and the other uses the IFRS standard for SMEs, then this condition would not be considered met.

6. Condition related to valid commercial reasons

As per this condition, the transaction must be done for any valid commercial or non-fiscal reason that would reflect an economic reality. The reason for conducting the restructuring must be considered based on all the facts and circumstances prevailing. Both the transferor and the transferee must maintain all the documents of the transaction that prove that it was undertaken for the said motive.

The above-listed conditions are to be met by the authorities so as to claim relief under the CT law. If the entities fail to meet any one of the conditions, then they might not be eligible for relief.

You can also read: What Are the Consequences of Election for Qualifying Group Relief?

CDA: Your perfect tax assistant

Ensure that your firm follows all the conditions and gets the multiple benefits of the exemption and relief under the CT regime with the assistance of our CT experts. Our experts are well aware of the prevailing intricacies and the solutions to simplify these intricacies. We can provide your firm with a personalised tax framework that enables you to stay compliant with the regulations, reduce tax costs, get relief, etc.

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