Transfers within a qualifying group explained under Corporate Tax in UAE

A Qualifying Group, as defined by corporate tax regulations, refers to a group of two or more taxable entities that meet specific criteria. These criteria are essential for companies to benefit from specific tax advantages related to intra-group transfers. 

Qualifying Group Criteria: 

For two taxable persons or companies to be considered part of the same Qualifying Group, they must satisfy all the following conditions: 

Juridical Persons: Both entities must be legal entities recognized under the law, such as corporations or partnerships. 

Residency Status: They must either be resident companies within the jurisdiction or non-resident companies with a permanent establishment in the UAE. 

Ownership Threshold: One company must hold a direct or indirect ownership interest of at least 75% in the other, or a third party must hold at least 75% ownership interest in each company. 

Exempt and Free Zone Exclusions: Neither company can be an exempt person (e.g., charities) or a qualifying free zone person (entities benefiting from specific tax exemptions in designated free zones). 

Financial Year Alignment: Both companies must have the same financial year-end for their accounting purposes. 

Accounting Standards Consistency: Their financial statements must be prepared using the same accounting standards. 

 Companies forming a Qualifying Group enjoy certain tax benefits when transferring assets or liabilities between themselves. These benefits include: 

 No Gain/Loss Recognition: When a transfer of an asset or liability occurs between members of a Qualifying Group, no taxable gain or loss is recognized for either company. This means the transfer happens at the net book value, which is the asset's value on the company's books minus any accumulated depreciation.

 Consideration of Net Book Value: If any consideration (payment) is involved in the transfer, its value must also be equal to the net book value of the transferred asset or liability.   The relaxation provided shall be deemed to have taken place at Market Value at the date of the transfer for the purposes of determining the Taxable Income of both Taxable Persons for the relevant Tax Period, if within (2) two years from the date of the transfer, any of the following occurs:    

1. There is a subsequent transfer of the asset or liability outside of the Qualifying Group. 

2. The Taxable Persons cease to be members of the same Qualifying Group. 

  Election and Recordkeeping: It's important to note that opting for this tax treatment requires an election by the entities involved. This election, once made, remains valid for the current tax period and all subsequent periods. Companies choosing this option must also comply with specific formatting and submission requirements for relevant tax documentation.  

Anti-Avoidance Rule: To prevent potential tax abuse, a specific rule applies. If, within two years of the intra-group transfer, either of the following events occurs, the initial relaxation provided will be revoked, and the transfer will be treated as happening at market value for tax purposes:   

Ownership Interest: Taxable persons holding the following interests or instrument shall constitute ownership interest: 

• Equity Shares 

• Preference Shares 

• Redeemable Shares 

• Interest in Partnership 

• Any other securities held / monetary contributions / entitlement to earnings or liquidation proceeds. 

 Navigating corporate tax landscapes demands meticulous attention to provisions like transfers within a qualifying group. By understanding the criteria, implications, and associated benefits, entities can optimize their tax strategies while ensuring compliance with regulatory frameworks. It’s a realm where informed decisions pave the path to fiscal efficiency and regulatory adherence, crucial for sustainable business operations in the modern corporate landscape.