Consequences of Election for Qualifying Group Relief UAE CT
The UAE introduced the corporate tax (CT) regime to make things fair for every business. The Federal Tax Authority (FTA) made a guide on qualifying group relief to help companies understand the rules about asset or liability transfers in a group. Mubarak Al Ketbi (MAK) Auditing explains what happens when a company makes an election for group relief and what results you must expect.
What Is the Election for Qualifying Group Relief?
Election for qualifying group relief means a transferor, the company moving assets or liabilities, chooses to use tax-neutral treatment for the transfer. The company receiving the assets or liabilities is called the transferee.
- The transferor must elect group relief for the transfer.
- Once the election is made, you can’t reverse it unless FTA says yes.
- Group relief covers transfers of capital assets and liabilities inside the group for the tax period.
Main Consequences for the Transferor
Here’s what the transferor must know after the election:
- The transferor moves assets or liabilities at net book value.
- No gain or loss is counted at the time of the transfer.
- Net book value is the cost minus depreciation, amortization, or other adjustments.
- The transferor doesn’t pay tax now, but must keep records of all values and adjustments.
Main Consequences for the Transferee
Here’s what the transferee faces:
- The transferee must adjust taxable income.
- The transferee can’t claim depreciation, amortization, or value changes on assets or liabilities, unless it was a gain already recognized by the transferor for CT.
- If assets or liabilities are sold later, the transferee must add back any amount not recognized for CT at the transferor level.
How Several Transfers Affect Net Book Value
If you transfer assets or liabilities again, the “no gain/no loss” rule applies each time. But when the asset is finally sold outside the group, any gain or loss skipped earlier is counted at that time.
How Asset Exchanges Work
If two companies exchange assets or liabilities, each transfer is treated as separate. The group relief is only given if at least one side makes the election. Both assets or liabilities must be on capital account.
- If the exchange is not on capital account, group relief is not given.
- Both transfers count as “no gain/no loss” for CT.
What About Tax Losses?
You can’t transfer tax losses through group relief. Tax loss transfers follow Article 38 of UAE CT law, not the group relief rule.
What If You Don’t Meet the Election Requirements?
- If Article 26(1) doesn’t apply, your transfer isn’t covered by group relief.
- If the transfer is between related parties, it must meet Arm’s Length Standard.
- The gain or loss will be set by the market value.
- If parties are not related, gain or loss is based on each company’s own accounts using their accounting standards.
Key Points to Remember About Group Relief
- Transfers must follow FTA rules and be on capital account.
- Election is final unless FTA allows a change.
- Both parties must keep records of values and adjustments.
- If you don’t follow the rules, you might have to pay extra tax.
- Group relief doesn’t cover tax losses.
What Can Help? – Mubarak Al Ketbi (MAK) Auditing
If you want to use group relief, you must follow every step right. Mubarak Al Ketbi (MAK) Auditing helps your business by:
- Checking if your transfers meet all group relief rules,
- Helping with paperwork and elections,
- Keeping records of all asset values and adjustments,
- Explaining your tax duties and preparing you for FTA checks,
- Giving clear advice so you don’t “bite off more than you can chew.”
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
