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Explaining Tax Reliefs in the Dubai Corporate Tax Law

Sep 07, 2023 / UAE Corporate Tax

Tax Reliefs in the Dubai Corporate Tax Law

Tax matters can often seem complex and daunting, but the Dubai Corporate Tax Law is here to simplify things for businesses. If you’ve ever wondered about the reliefs offered under this law, you’re in the right place. We’ll break down the key points in plain and simple language so that anyone can easily understand.

What Are Dubai Corporate Tax Law Reliefs and Why Do They Matter?

Imagine you’re running a business and need to make certain changes within your company. Maybe you want to move assets or liabilities around, or perhaps you’re looking to transfer shares to restructure your business. These actions can have financial implications, including taxes that need to be paid. But the Dubai Corporate Tax Law provides reliefs – like helpful breaks or exemptions – that can make these transitions smoother.

Transfers within a Qualifying Group

Let’s start with a scenario: You’re a part of a group of companies, and you want to move some stuff around within this group. Good news! The UAE Corporate Tax Law says that if you and another company in your group want to shift assets or liabilities between yourselves, you don’t need to worry about calculating gains or losses for tax purposes. It’s like a tax-friendly shuffle of resources.

However, there are a few conditions to meet:

  1. Qualifying Group Criterion: Both companies should either be residents in the UAE or non-residents with a permanent establishment here.
  2. Ownership Interest Criterion: You or a third party must own at least 75% of both companies.
  3. Exempt Persons and Qualifying Free Zone Persons: Neither of the companies should be classified as exempt or qualifying free zone persons.
  4. Same Tax Period: Both companies’ financial years must end on the same date.
  5. Consistent Accounting Standards: Both companies should use the same accounting standards for their financial statements.

If you fulfill these conditions, you can take advantage of the reliefs provided under the UAE Corporate Tax Law. But remember, if you don’t meet these criteria, the relief might be taken away.

Getting Relief for Transfers within the Qualifying Group

Now, let’s say you’ve met all the conditions and are ready to make the transfer. Here’s how you handle the accounting:

  1. Transfer at Net Book Value: When you move an asset or liability within the group, you record it at its net book value. No need to worry about gains or losses – it’s as if you’re moving things around on paper.
  2. Consideration Paid or Received: The money exchanged for the transfer should match the asset’s net book value or liability. This way, everything stays balanced and fair.

By following these steps, you can enjoy the benefits of the reliefs under the UAE Corporate Tax Law. Remember to be accurate in your records and make sure the money matches the value of what’s being transferred.

When Dubai Corporate Tax Law Relief Can Be Taken Away

Of course, there are situations where you might lose the relief you got:

  1. Transfer outside the Qualifying Group: If the asset or liability you transferred is later moved outside the qualifying group, the relief you initially received will be canceled. The transfer will be treated as if it happened at the market value on the date of the subsequent move.
  2. Cessation of Qualifying Group Membership: If a company that’s part of the qualifying group stops being in the group within two years, the relief for the transfer will be withdrawn. Again, the transfer will be treated as if it occurred at market value.

In both cases, the tax treatment will change, and you’ll need to calculate your taxes based on the market value.

Stay Informed and Seek Expert Guidance

Understanding these reliefs is important to ensure your business gets the benefits it deserves while staying on the right side of the law. Consulting a knowledgeable tax consultant is always a good idea if you’re unsure about any of these rules or how they apply to your situation. They can guide you through the ins and outs of the Dubai Corporate Tax Law and make sure you’re making the best decisions for your business.

In conclusion, the UAE Corporate Tax Law has some nifty reliefs to make things easier for businesses during transfers and restructuring. Remember to follow the conditions closely, handle the accounting correctly, and seek expert advice when needed. That way, you can navigate the world of corporate taxes with confidence and ease.


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