Clawback of Qualifying Group Relief UAE CT Explained

Understanding Clawback of Qualifying Group Relief in UAE CT

The UAE government has made new rules under its corporate tax regime (CT) to make sure that businesses work within fair guidelines. The Federal Tax Authority (FTA) recently released a guide about how companies can transfer assets or liabilities inside a qualifying group and still get relief from taxes. Mubarak Al Ketbi (MAK) Auditing explains what “clawback” means and how to avoid problems if your business uses qualifying group relief.

What Does Qualifying Group Relief Mean?

Qualifying group relief lets companies move assets or liabilities between group members without paying tax at that time. The company moving the asset is the transferor. The company getting it is the transferee. Both companies must be in the same qualifying group.

• This relief only works if the transferor and transferee are group members.
• There must be no big changes in group ownership.
• The relief makes it easy for groups to move things around without a tax hit right away.

But there are also clawback rules you must know, or you might face surprise tax later.

What Is a Clawback in Group Relief?

A clawback is when the FTA takes back the relief you got earlier because certain rules weren’t followed later. If this happens, you might have to pay tax on gains or losses you thought were safe.

You can see clawback like a rule that “gives with one hand and takes with the other.”

Triggers for clawback:

• There’s a second transfer of the asset/liability outside the group within two years of the first transfer.
• Either the transferor or transferee stops being part of the same qualifying group within two years.
• The transferor or transferee is no longer a taxable person.
• The transferor or transferee becomes exempt or a qualifying free zone person in a later tax period.
• Their financial year-ends don’t match up anymore.
• Shares or ownership interests, issued as part of a restructuring, are transferred—even if only one share changes hands.

When Will Clawback Happen? (Main Cases)

1. Second Transfer Outside the Group

• If you transfer an asset or liability and then, within two years, move it outside the group, the original tax relief is canceled.
• All three parties—the original transferor, the original transferee, and the new transferee—must be in the same qualifying group at the second transfer to keep the relief.

Examples:

• If you sell an asset to someone outside the group in less than two years, the clawback rule will apply.
• If the transferee is liquidated or merged and the asset leaves the group, clawback triggers.

2. Changes in Group Membership

Clawback happens if:

• Ownership changes, and one party leaves the group.
• One company becomes exempt or a qualifying free zone person.
• One company isn’t a taxable person anymore.
• They change their financial year so their tax periods don’t match.

3. Share Transfers Linked to Business Restructuring Relief

• If you transfer shares issued during a business restructuring, it counts as an asset transfer.
• Even if only one share leaves the group, the clawback rule is triggered.

What Happens When Clawback Applies?

• The FTA will treat the original asset transfer as a taxable event.
• The transferor must report any gain or loss for tax.
• The transferee must adjust depreciation or amortization for tax purposes.
• If you miss these rules, you could owe penalties.

How to Stay Safe from Clawback

• Keep your group’s ownership steady for at least two years after a transfer.
• Don’t transfer assets or shares outside the group in this period.
• Watch out for changes in tax status or financial year ends.
• Keep detailed records for every transfer and review them each year.

You should always:

• Check every transfer for group membership before and after.
• Update your compliance plan with every restructure.
• Get expert advice on qualifying group relief and clawback.

If you want to avoid clawback issues, you need a partner who knows every rule. Mubarak Al Ketbi (MAK) Auditing will:

What Can Help? – Mubarak Al Ketbi (MAK) Auditing

• Check your transfers and group membership,
• Review your tax filings for risks,
• Help you keep good records,
• Update your compliance after every change,
• Give you advice that helps you “keep your ducks in a row.”

For more information:

• Visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
• Contact/WhatsApp: +971 50 276 2132