Qualifying Group Relief in UAE Corporate Tax
The United Arab Emirates (UAE) has recently implemented significant tax reforms aimed at rationalizing its tax framework, aligning it with international standards, and expanding its revenue base. The proposed Corporate Tax (CT) in the UAE will be levied on the taxable profits generated by businesses, including individuals engaged in commercial, business, or any other economic activity, subject to certain exclusions and limitations.
Under the Uae Corporate Tax system, UAE-based entities are permitted to avail themselves of group relief with respect to losses, intragroup transactions, and reorganizations. To gain further insight into the proposed group relief provisions under the UAE corporate tax regime, we invite you to continue reading.
Qualifying Group Relief
Enterprises have the opportunity to establish tax groups within the corporate tax framework of the United Arab Emirates, which was implemented in June 2023. The activities of major corporations are often conducted through a network of affiliated businesses, each consisting of a parent company and several subsidiaries. The formation of tax groups by companies serves to confine or segregate responsibilities, thereby enhancing the efficiency of overall tax compliance costs.
Qualifying group relief is a tax relief provided under the UAE Corporate Tax Law on intra-group transfer of assets or liabilities between taxable persons that are members of the same qualifying group. To be treated as members of the same qualifying group, the following conditions set out by the UAE Ministry of Finance (MoF) must be met:
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- The taxable persons are tax-resident entities.
- The parent company owns at least 75% of the voting rights and share capital of its subsidiaries, directly or indirectly or a third person holds a minimum of 75% shares in more than 2 entities, directly or indirectly.
- Neither of the companies are exempt or Qualifying Free Zone person
- All the companies are following the same financial year and Accounting Standards.
Transfer of losses
In accordance with the UAE CT framework, the transfer of tax losses between group companies may be permissible under specific circumstances. This is applicable to combinations of businesses that fail to meet the required 75% common ownership threshold or opt not to form a tax group.
Furthermore, the total tax loss offset must not exceed 75% of the applicable period’s taxable income of the entity that receives the transferred losses. Any remaining tax losses can be carried forward indefinitely, subject to certain conditions.
Requirements:
- It is mandatory for UAE Group companies to have a minimum joint ownership of 75% or a third person to hold a minimum ownership of 75% in entities, directly or indirectly.
- Transfers of losses from businesses that are exempt from losses or have the privilege of 0% Free Zone Corporate Tax are strictly prohibited.
- The aggregate amount of tax losses that can be offset should not exceed 75% of the taxable income of the entity receiving the transferred losses for the relevant period.
- Subject to specific conditions, balance sheet loss carryforwards can be carried forward indefinitely.
Liabilities and Assets within Group Transfers
Transfers of assets and liabilities between group entities based in the UAE, with a common ownership stake of at least 75%, are exempt from the requirement of Corporate Tax (CT) provided that they are kept for a duration of no less than three years subsequent to the transfer date.
When requesting intra-group relief, the assets and liabilities in question are recognized as having been transferred at their tax net book value. This prevents both the transferor and the transferee firm from being responsible for any gain or loss when determining their respective taxable income.
If the applicable criteria for intra-group relief are no longer met, any gain or loss that would have occurred upon the initial transfer must be calculated and included in the transferor’s tax return shall be filed during the tax period in which the circumstances officially concluded.
Seek expert advice from Flying Colour Tax Consultant LLC. Now is the best time to be ready with Corporate Tax compliance in the UAE. Call us now for a thorough discussion about Corporate Tax in UAE and let us assist you.
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