The Federal Tax Authority (FTA) has produced the most recent Business Restructuring Relief Guide for business tax purposes (Guide) as part of its ongoing efforts to help business taxpayers comprehend and navigate the intricacies of the UAE’s corporate tax framework. Please note, however, that FTA Guidelines are not legally obligatory, in contrast to tax regulations.
The process by which a firm or group of companies reorganizes its business operations is known as business restructuring, and it is a key factor in maximizing both financial and organizational efficiency.
General information about the business restructuring relief granted by Article 27 of the UAE Corporate Tax Law is intended to be provided by this guide.
Regarding Business Restructuring Relief, the Guide gives readers a summary of the following:
• transactions that fall under the purview of the relief;
• eligibility requirements;
• consequences of choosing to opt for the relief;
• conditions under which the relief will be rescinded and the repercussions of doing so;
• requirements for compliance; and interactions with other provisions of the UAE Corporate Tax Law.
Business Restructuring Relief: What Is It?
It is the easing or removal of the corporate tax impact on specific business transactions that are a part of a company’s reorganization or restructuring.
Mergers and demergers are examples of business restructuring transactions that frequently result in a taxable gain or loss, even when the original owners of the business or taxable person continue to own a portion of the restructured business or the ultimate ownership of the business remains unchanged.
Certain kinds of restructuring transactions can occur in a tax-neutral way thanks to the Business Restructuring Relief under Article 27 of the Corporate Tax Law. Transactions involving restructuring that are carried out for legitimate business or other non-fiscal purposes are supported.
Transactions that fall under the relief’s purview:
Article 27(1)(a) and Article 27(1)(b) of the Corporate Tax Law specify the two types of transactions to which Business Restructuring Relief applies.
In the first category, a business or a separate portion of a business is transferred from one taxable person to another.
In the second category, an entire business is transferred from one or more taxable persons to another, and the transferor subsequently goes out of business.
Requirements to qualify for the relief:
All of the following requirements must be fulfilled for Business Restructuring Relief to be applicable:
The following are the repercussions of choosing Business Restructuring Relief:
- The transfer is carried out in compliance with the relevant UAE laws and satisfies all of their requirements (the “legally compliant condition”).
- Both the transferor and the recipient are either residents or non-residents with a permanent establishment in the United Arab Emirates (the “Taxable Persons requirement”).
- Due to the “Exempt Person condition,” neither the transferor nor the transferee is exempt.
- The “Qualifying Free Zone Person condition” states that neither the transferor nor the transferee is a Qualifying Free Zone Person.
The same accounting standards are used by the transferor and the transferee to prepare their financial statements (the “Accounting Standards condition”), and
The “valid business reasons condition” states that the transfer is being made for legitimate commercial or other non-fiscal purposes that are consistent with economic realities.
Since tax relief is a profitable factor when reorganizing a firm, section 5 of the Guide outlines the ramifications of choosing business structuring relief so that taxpayers can make an informed choice.
Asset and liability transfers at net book value
If a business is transferred without any gain or loss, the transferred assets or liabilities will be valued at their net book value on the transfer date. Therefore, when the assets and liabilities are transferred, the transferor will not experience any taxable gain or loss.
The amount of the shares or ownership stake obtained
In this situation, the shares or other ownership interests received by the transferor or its shareholder(s) who directly or indirectly own at least 50% of the transferor’s assets will be treated as having a value that is no greater than the net book value of the transferred assets and any assumed liabilities, less the value of any other consideration received for corporate tax purposes.
Transfer of Tax Losses:
According to this clause, unused tax losses that the transferor incurred during the tax periods prior to the restructuring transaction may be carried forward and are regarded as the transferee’s tax losses, so long as the transferee keeps up the same or a comparable business or business activity that the transferor did prior to the restructuring transaction.
Repercussions for failing to choose Business Restructuring Relief or failing to complete requirements:
Not all business transfers between two taxable persons are covered by Article 27(1). The transfer would be outside the purview of Article 27 of the Corporate Tax Law if the requirements for a no-gain or no-loss transfer are not fulfilled or if the transferor has not chosen to use Article 27 of the Corporate Tax Law
The clawback of business restructuring relief states that it will not be applicable if the transferor or transferee sells or disposes of all or a portion of their shares to a non-qualifying group or if a subsequent business restructuring under Article 27 of the Corporate Tax Law takes place within two years of the transfer date.
Additionally, this guide explains the compliance requirements for businesses choosing to use business restructuring relief, and Section 8 discusses how business restructuring relief interacts with other aspects of corporate tax law.
Final Thoughts: These are just a handful of the key clauses in our FTA guide, which offers a thorough explanation of the relief provisions so that companies may confidently plan their expansions to
comply with the new tax regime. To maximize their tax situations during restructuring activities and take advantage of tax benefits, businesses can thoroughly examine the provisions of this Business Restructuring Relief handbook.
Disclaimer This publication is intended solely for informational reasons and does not offer any legal advice. Any business, legal, or other decisions should not be made based on the content or information in this publication. Therefore, you are solely responsible for any reliance you place on such material.
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