UAE Corporate Tax: A business restructuring relief comes with expanded scope

UAE Corporate Tax: A business restructuring relief comes with expanded scope

The UAE’s economic growth coupled with the introduction of a competitive corporate tax regime is resulting in transformations across industries. We are seeing an increase in mergers, acquisitions and hive-offs.

At a micro level, individual business owners are converting sole establishments into companies. The multinational groups are also contemplating to convert their UAE branches into ‘limited liability companies’. The UAE corporate tax envisages tax neutrality – referred to as business restructuring relief - in instances of transfers of existing business or an independent part of it.

On electing for business restructuring relief, the transferor entity would not be subjected to corporate tax on any gains or loss arising from such a transfer. Its assets and liabilities will be treated as being transferred at net book value resulting in nil gain or loss.

The Federal Tax Authority recently issued guidance on the business restructuring relief, which provides the conditions to claim this relief, procedural requirements and the clawback consequences of non-compliance.

Conditions that apply

To be eligible, the transferor and transferee should be resident juridical persons or a UAE-based permanent establishment of a foreign company. They should not be an exempt person nor a qualifying free zone person, and should follow