Any business’s cash flow has to keep flourishing. Recently, the Ministry of Finance (MOF) in the UAE decided to simplify business taxes for corporations and businesses to ensure high economic growth and better international business practices. You can learn more, by consulting our Dubai Lawyers.
Let’s take a look at the ministerial decisions that have been improvised to provide tax relief to businesses in the UAE:
Transfers within a Qualifying Group – Ministerial No. 132 of 2023
According to the ministerial decision on transfers within a qualifying group, business entities must comply with record-keeping and formally elect this decision to relieve their Tax Return. However, this is an irreversible decision and tax relief, which means it will be applied every time tax time begins each year. There could be an exchange of assets or liabilities that may have an explanation for tax relief if it is revoked within 24 months as they are excluded from the Qualifying Group. Learn More about ministerial decisions here.
Business Restructuring Relief – Ministerial Decision No.133 of 2023
It is a decision that talks about making better business mergers and transactions without having any obligations of the corporate tax. However, this type of relief is applied when a business has merged with another legal entity, whether as a whole or a small part of its business, resulting in receiving shares and ownership of interests. Additionally, choosing the business restructuring relief, the business is exempted from any gain or loss of taxable income.
Eligibility to Determine Business Restructuring
If the business wants to take relief from corporate tax, they have to maintain the criteria.
As per the law of business structuring in the UAE, the business is relieved from taxable income once it has transferred a part to another legal entity. However, business restructuring cannot be done by every business. There requirements to take business restructuring relief in the UAE:
- The person who wants to transfer their business must already be taxed under corporate law.
- The person to whom the business will be transferred should become a taxable person after the transfer; however, before the business transfer, they do not need to be a taxable person in the UAE.
- Most importantly, the business transfer should be either independent or a complete business shall be transferred.
- Once the business has been transferred to the other person or the entity, the seller will not have to pay corporate taxes.
Conditions to Meet the Criteria of Business Restructuring
- The process of transferring assets must comply with UAE laws.
- The person who transfers the assets must have established themselves in the UAE through residency or a business.
- No, neither the transferor nor the transferee could qualify for the free zones according to the Corporate Tax Law in the UAE. Both should be known as taxable persons or entities.
- The fiscal year ending for both parties must be the same. Additionally, they should have the same accounting standards for the tax period.
- The reason for the transfer must not reflect a monetary benefit to the transferor. However, they should let people know the intention and give a valid reason for transferring their assets. They should also explain how the transfer of assets booms the UAE economy.
If the above conditions have been met, then only the transfer of business assets is validated under business restructuring relief.
How do you transfer to a non-taxable person in the UAE?
The restructuring relieves business entities wanting to be exempted from the tax. They can make transfers to a non-taxable person. Furthermore, there are some circumstances in which business assets are transferred to a non-taxable person in the name of business restructuring:
- The person may receive the ownership or shares of the business.
- When another person issues the shares and ownership of interests, but not a transferee.
- A person who does not receive shares or ownership interests is a taxable person but works as a partner in an unincorporated partnership.
- The above scenarios define business restructuring as occurring even if both parties are non-taxable and can transfer assets. Taxable people can claim business restructuring relief under Article 27 of the UAE Corporate Tax Law.
General Rules to Determine the Taxable Income, Ministerial Decision Np.134 of 2023
This rule makes calculating taxable income for UAE businesses easy. Most importantly, the calculations are based on clear instructions about the necessary adjustments to be made in the financial statements. Moreover, it also guides on the adjustments to change the values of the assets and liabilities that may result from involving related parties, qualifying groups, or the business structure relief.
Tax Consultants Are Available at Ask the Law
Setting up a business in the UAE without hiring a lawyer is difficult. The business environment changes in the UAE as the government wants better business practices for investors and other parties. A well-experienced tax consultant will influence Your decision to transfer business assets or find ways to be exempted from the UAE Corporate Tax.
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