What is the Clawback of Business Restructuring Relief?

The introduction of the CT regime has resulted in a significant change in the overall business demography in the UAE. The businesses must ensure that they follow the compliance requirement under the new regime. The complexities of the new tax regime might be overwhelming for the businesses, but the FTA has introduced many perks with the new regime. Certain reliefs, exemptions, and deductions can assist the entities in reducing their tax payments and making accurate payments. One such relief is the business restructuring relief that has been introduced under the UAE Corporate Tax law. The businesses eligible for implementing this relief must also be aware of the clawbacks if the conditions are not met. The detailed explanation of the clawbacks of the relief is included in this blog.

Clawback of Business Restructuring Relief

The business entities who have elected for the relief shall be revoked to apply the relief if within the 2 years from the date of transfer the following instances occur:

• Where the share or any of the ownership interest in the transferor is sold, transferred, or disposed either wholly or partially to any person who is not considered a member of the qualifying group in which the taxable persons belong or where the share or any of the ownership interest in the transferee is sold, transferred, or disposed either wholly or partially to any person who is not considered a member of the qualifying group in which the taxable persons belong or where the share is.
• Where there is a transfer or any disposal of the business or the independent part of the business subsequently under the CT law.

In the above-stated scenarios, the relief will be clawed back, and hence the transfer will be considered to be undertaken based on the market value at the date of transfer, which results in the gain or loss for which the taxable income should be included for the tax period by the transferor.

You can also read: Consequences of Electing for Business Restructuring Relief under UAE Corporate Tax

Circumstances that Trigger the Clawback

Transferring of Shares in the Transferor or the Transferee

Within the 2 years from the date of the transfer, if there is a transfer of the shares or the ownership interest in the transferor or the transferee either wholly or partially to any of the persons not being members of the qualifying group, then it would result in the clawback of the business restructuring relief.

The clawback will be only applicable if the transfer is made in respect of the shares or the interest being part of the business restructuring relief. Usually, the transferors don’t issue any shares or ownership interests under a business restructuring transaction; hence, it is unlikely to trigger the clawback of the relief. Whereas the clawback may be applied for any transfer of the share or the ownership interest in the transferee within the said duration of 2 years where the share and interest are part of the restructuring transaction.

Examples of circumstances triggering the clawback:

• Where there is a sale of shares in the transferee to a person who is not a member of the qualifying group
• Where there is a transfer of the share or ownership interest as a part of any liquidation process or winding up and the transferee has ceased to exist
• Where there is a transfer of the shares or the ownership interest a part of any other transaction eligible for the business restructuring relief, which might involve any transfer between the members that are part of the distinct qualifying group.

You can also read: All About VARA Audit in Dubai

Subsequent Transfer of Business

If within the 2 years from the date of transfer there is any subsequent transfer of the business or any independent part of the business or any disposal of the business or any independent part of the business, then the restructuring relief will be clawed back. The clawback is applicable for the transfers made under Article 27(1) of the CT law.

It is applicable for the following situations:

• Where there is a transfer of business that is within a tax group
• Where there is a transfer of business within a qualifying group on which the article 27(1) of the CT law is applicable
• Where the transfer is made in relation to any liquidation or disposal
• Where the transfer is considered to be a part of any other business restructuring transaction eligible for the relief.

How Can CDA Help You?

CDA, being one of the best accounting and auditing firms in the UAE, Dubai, has a team of professional tax experts who are well versed with the new CT laws. Our team of professionals can assist you in getting the applicable exemptions, relief, and deductions, thereby reducing your tax payments. We can assist your business in getting registered under the CT regime and also solving the intricacies of the new CT law. Our team shall train your employees regarding the latest regime, simplifying the rigid laws, and ensuring an effective CT framework.

To know more about our services, contact our team now.