Impact of Taxation on Restructuring

The United Arab Emirates (UAE) is a preferred hub for businesses looking to expand and diversify their operations in the Middle East. However, business expansion can take many forms, such as mergers, acquisitions, spin-offs, and divestitures.

Businesses must consider the tax implications on such strategic decisions and ensure compliance with the applicable regulations. In this article, we will explore the impact of taxation on restructuring in the UAE.

Impact

• Tax residency status to determine the taxability.
• Capital gains tax on transfer of assets or liabilities.
• Transfer pricing implications on determining prices.
• Withholding taxes on repatriation.
• Transfer of tax attributes can impact tax liability.

Provisions under UAE CT

Ø Business Restructuring Relief 

• In exchange for ownership.
• Held for at least two years post transfer.
• Unutilized tax losses transferred to the transferee.

Ø Transfer between qualifying groups

• Between juridical taxable persons.
• Has a direct or indirect ownership interest of at least 75%.
• Held for at least two years post transfer in the qualifying group.

Ø Exceptions

• Exempt person.
• Qualifying freezone person.
• Persons having different financial year and accounting policies.

Factors to consider

• Jurisdiction domestic law and double tax treaties
• Transfer pricing implications
• Entity type
• Location for tax incentives
• General Anti Abuse Rules (“GAAR”)
• Disclosures and documentation

How can Crowe help?

• Analyzing eligibility for restructuring relief available under the provisions of the UAE domestic law.
• Advising on business restructuring and expansion arrangements from the GAAR prospective.
• Providing advice on business restructuring by conducting an assessment of domestic tax laws and tax treaties to identify opportunities for minimizing tax liabilities.