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Post By: admin July 08 2024

Summary On Qualifying Group Relief Conditions Under UAE Corporate Tax

Since the Corporate Tax regime was introduced in June 2023 in the UAE, it brought about a wave of changes in businesses operating in the region. And while a lot of people view it as another complexity in the long-term business matters, it also comes with various opportunities for tax optimization. 

Qualifying Group Relief is one of these opportunities, allowing tax-neutral transfers of assets and liabilities within a strategically formed group structure. A lot of businesses in the UAE are considering establishing Qualifying Groups- for the potential cost savings, and the operational efficiencies that a Qualifying Group Relief can offer. 

However, for someone who isn’t familiar with this might need some guidance as to navigate the Qualifying Group framework and maximizing its benefits. 

Understanding Qualifying Groups

It is quite important to establish an understanding of Qualifying Groups and what it entails. A Qualifying Group can be best understood as a strategic group made for business and tax purposes, where the transfer of assets and liabilities can be done on a tax-neutral basis.

The transferring company is known as the transferor. The transferor must explicitly elect to apply for Qualifying Group Relief for a specific transfer to another Taxable Person, known as Transferee, so that there is proper transparency in the actual transfer process, and the Relief is applicable. There are certain conditions that should be met for these transfers to take place. 

For example, the Relief is only applicable when both the Transferor and the Transferee are part of the same Qualifying Group, and the Transferor has elected for the transfer. Also, if within two years, the asset or liability is subsequently transferred to another Transferee, the Relief will be clawed back. This clawback is also applicable in case of either the Transferor or the Transferee leaving the Group. 

Also, the assets and liabilities for the transfer have to be held on the capital account of the Transferor. If the assets and liabilities for transfer aren’t held in the capital account, then it isn’t in the scope of the Qualifying Group Relief.

You can also read: Qualifying Groups Under UAE Corporate Tax And Eligibility of Creating Tax Groups

Qualifying Group Relief: Conditions

The conditions stipulated for the Qualifying Group Relief are quite simple and straightforward:

  • Both Transferor and Transferee should be Juridical Persons:

This can involve Juridical Persons having separate legal entities (like LLCs). Natural Persons and Unincorporated Partnerships are not eligible for this Relief. However, it is still available to a person who is a partner in an Unincorporated partnership or held by an Unincorporated Partnership.

  • Both Transferor and Transferee should be Taxable Persons

For Resident Persons: Under the Corporate Tax law, recognized, established, or incorporated under UAE, or entities incorporated outside the UAE but controlled effectively within the UAE. 

For Non-Resident Persons: Entities having a Permanent Establishment (PE) in the UAE through which they conduct business. 

Non- resident persons deriving UAE income without a PE are not eligible for the same. 

  • Direct, Indirect, or Common Ownership (minimum 75%)

Either the transferor or the Transferee should have a direct or indirect ownership interest of at least 75% in the other Person, or a third Person should have a direct or indirect ownership of minimum 75% in both the Transferor and the Transferee.

The Taxable Person having control over the ownership interest is also entitled to its economic benefits as per the Accounting Standards. The ownership condition will also be satisfied if the required Indirect holding is through an Exempt Person or a Qualifying Free Zone Person (QFZP).

  • Qualifying Free Zone Person (QFZP) and Exempt Person:

Neither the Transferor nor the Transferor should be an Exempt Person or a Qualifying Free Zone Person. However, Free Zone entities not qualifying as either can still be a part of a Qualifying Group.

You can also read: What are a Qualifying Free Zone Person and a Qualifying Group under UAE CT?

  • Financial Year and Accounting Standard:

The financial year of all the entities within the Qualifying Group must have the same end date, for a uniform financial timeline. Also, the Transferor and the Transferee must prepare their Financial Statements according to the same Accounting Standards.

A Taxable Person can opt to apply to the FTA for changing the financial year to align the financial year end date with the other members of the Qualifying Group, under certain conditions.

Getting the proper insights of the Qualifying group relief under the UAE Corporate Tax law is very important, especially for the entities which operate in UAE. 

Understanding the requirements, benefits, and eligibility criteria for the same may help make informed decisions about establishing a Qualifying Group and utilizing Qualifying Group Relief for operational efficiency in business.

How Can CDA Help You?

CDA, being one of the leading accounting and auditing firms in Dubai, UAE, can help businesses in the UAE get themselves registered under the CT regime and also stay compliant with the new regulations laid by the FTA. CDA’s team of tax professionals can assist you in identifying the various reliefs that are applicable to businesses and availing of various exemptions, which can result in a significant decrease in tax expenses. Our team of well-equipped tax veterans is always on standby to meet the various tax requirements of our clients in the UAE.

To discover more about our services, reach out to us now!