Group Relief and Restructuring Relief in UAE

The introduction of Corporate Tax in UAE aims to diversify government revenue sources in line with international best practices. To ease the tax compliance burden on businesses, the tax laws provide many reliefs, some of which are in the form of Group Relief and Restructuring Relief. This blog discusses these reliefs in detail, including their eligibility criteria and benefits.

Group Relief

Group relief allows a company to surrender its losses to another company in the same group. This can be beneficial for the company that is making losses, as it can reduce its tax liability. The company that is receiving the losses can then use them to offset its profits, thereby reducing its tax liability as well. Companies in UAE might try to reorganize their activities or restructure the businesses in order to survive and meet the increasing market demands. Under such scenarios, the firm may revalue their assets or liabilities, which in turn may give rise to tax liabilities, creating more burden on the business. Under the new corporate tax regime, businesses are provided relief while they undergo any reorganization. The transfer of assets or liabilities will not increase the tax liabilities for the business of the same group.

You can also read: Corporate Tax Requirements for Business Branches in UAE

Eligibility Criteria for Group Relief

To be eligible for group relief, the companies must meet the following requirements:

• They must be UAE residents or have a permanent establishment in the UAE.
• At least 75% of the voting rights and share capital of each company must be owned by another company in the group.
• The losses must be carried forward.
• The losses must be from an underlying business activity.

Intra-Group Transfer of Assets and Liabilities

Under the corporate tax regime, businesses are provided with the intra-group transfer relief where the assets or liabilities are transferred among the resident companies that are at least 75% commonly owned. The only criteria to be met is that the assets and liabilities transferred must remain in the same group for a minimum of three years, and when the transfer is made, it will be treated at the net book value as per the rule. Hence, the gain or loss on transfer will not be taken into account while ascertaining the taxable income.

The non compliance with the said criteria will result in the cessation of intra-group transfer relief for the businesses

Restructuring Relief

Restructuring relief allows a company to defer the taxation of gains arising from a business restructuring. This can be beneficial for companies that are restructuring their businesses, as it can give them time to consolidate their operations and reduce their tax liability. Under the corporate tax regime, restructuring relief is provided for businesses that, either as a whole or independently, are transferred in exchange forsharese or any other ownership interests; hence, it may facilitate mergers, spin-offs etc. Under such scenario,io the individual can avail of the relief with connection to the gain on the transfer of the assets or liabilities as a part of restructuring.

You can also read: CT Applicability on Branches of Foreign and UAE Companies

Eligibility Criteria for Restructuring Relief

To be eligible for restructuring relief, the restructuring must meet the following requirements:

• The transfer must be governed by UAE laws
• Permanent establishment in UAE
• Transfer at book value without recognizing gains/losses
• Same accounting standards and financial year-end
• Transfer for genuine commercial reasons
• It must not be motivated by tax avoidance.
• The gains must be from an underlying business activity.

Clawback of Restructuring Relief in the UAE 

There is also a provision for the clawback of the restructuring relief, where the transferred business is sold or transferred again to any third-party within three years of the restructuring. In such a scenario, any profit or loss on the initial transfer will be included while calculating the tax return for the concerned period.

In conclusion, Group Relief and Restructuring Relief play an important role in the UAE Corporate Tax system. They aim to reduce effective tax rates and optimize tax costs for businesses undertaking group restructuring. Companies must carefully evaluate these reliefs and plan structuring/transactions to maximize benefits within the eligibility criteria. If you are seeking expert tax advice, then contact CDA today for more help.

How can CDA help you?

CDA has been providing its robust accounting and auditing services, along with tax consultancy services, to its clientele for more than a decade, which has made it one of the leading service providers in UAE. You can approach the proficient team of CDA to get advice on corporate tax issues. Our team is well equipped with all the regulations of the new tax regime; hence, we can meet your tax requirements at any time. Get innovative solutions and stay complied to the new corporate tax regime in UAE. To know more about our services, contact us soon.