Consequences of Electing for Business Restructuring Relief under UAE Corporate Tax
The introduction of the CT regime has resulted in various changes in the business operations. The businesses are now required to ensure their compliance with the new CT regime. There are certain transactions that are not under the purview of the CT regime and to promote the businesses in the UAE. One such major relief is business restructuring relief, which the businesses can apply for if they meet certain conditions. Applying for the business restructuring relief entails some consequences of which the businesses must be aware, which are included and explained in this blog.
Consequences of Electing the Business Restructuring Relief
The businesses will have to consider the following consequences of business restructuring relief if they elect for it; these include the following:
-
Transferring the assets and liabilities at the net book value
If the businesses elect for the restructuring relief where the business or any independent part of the business is transferred without resulting in any gain or loss under the CT law, then the assets and liabilities are to be measured and treated based on the net book value at the date when the transfer is made. Hence, for the transferor of the assets and liabilities, there will be no gain or loss.
For example,
Suppose there is a company B that deals with electric vehicle machinery, and there is another company D that deals with the repair of the electric vehicle machines.
During a certain tax period, Company D has bought Company B in exchange for 30% of Company D’s shares. During the transfer, the net book value of the business of Company B was AED 2.3 million. On the other hand, the market value of the shares of Company D received by Company B was AED 2.7 million. The company D measures its assets and liabilities at fair value, and hence the assets and liabilities will be recognized on the transfer from the business at the net book value of AED 2.7 million for accounting purposes.
For the CT purpose, business of Company B will be considered as being transferred to Company D at net book value, which is AED 2.3 million, which means that when the calculation of the net taxable income is done, there will be a consideration of AED 2.3 million receivable by Company B. On the other hand, Company D will consider AED 2.3 million as paid, and there will not be any further profit or loss on transfer.
You can also read: Key Insights: UAE Corporate Tax Business Restructuring Relief
-
Value of the shares or the ownership interest received
If the business elects for the business restructuring relief under which the business is transferred, resulting in no gain or loss under the UAE Corporate Tax law, then the transferor or the shareholders of the transferor, who might be holding at least half of the ownership interests (directly or indirectly), should treat the shares or the ownership interest in the same entity, with the value not exceeding the net book value of the asset and liabilities transferred less any other consideration received under CT purposes.
Under the CT regime, the value of the consideration received by the transferor must not exceed the net book value of the transferred business or an independent part of any business. This is the value that should be considered by the entities in the calculation of any gain or loss taxable related to the sale of the shares or ownership interest.
-
Transfer of the tax losses
If the businesses elect for the business restructuring relief, and where a business is being transferred without resulting in any gain or loss under the CT law, the losses, if any, which are incurred by the transferor during the tax period prior to the restructuring are eligible for being carried forward, considering them as tax losses for the transferee. The transferee must continue to conduct the similar business or the activity that was conducted prior to the transfer by the transferor.
The similarity of the business or the business activity might be based on the following factors:
- Where the transferee is considered to use some or all of the transferred assets that were used by the transferor before
- Where the transferee is considered not to make any significant or ideal changes in the operations of the business even after the transfer
- Where any changes have been done or occurred as a result of development or any exploitation of the assets, processes, products, services, or methods that were prevailing even before the transfer.
How Can CDA Help You with CT Laws?
CDA, being one of the greatest firms in UAE is well known for its personalized CT services. Our team of professional corporate tax experts can assist you in demystifying the new regime and ensuring compliance with it. We can help you identify the reliefs and exemptions applicable for your business, thereby reducing the tax payments. The professionals at CDA are always ready to serve your business with personalized corporate tax strategies, enabling it to elevate its level in the market and acquire competitive advantages.
To know more about our corporate tax service, contact CDA now.