In a recent article by Mahar Afzal, the critical aspects of business restructuring relief (BRR) were discussed in detail. The BRR requires that both the transferrer and transferee must be taxable or become taxable as a result of the transfer. This means that governmental bodies, individuals with revenue less than Dh1 million, and non-residents are ineligible for BRR benefits. However, two permanent establishments (PE) can qualify for BRR if they meet all other conditions.
Furthermore, the parties involved must not be Qualifying Free Zone Persons (QFZP) or exempt individuals at the time of transfer. It is not mandatory for the parties to have the same start date for financial years, but they must have the same fiscal year end. The payment for the transfer must be capped at the lower of the net book value of assets and liabilities transferred or 10% of the nominal value of ownership interest issued.
Additionally, the gain from the transfer will not be taxed in the transferor’s records but will be disallowed to the transferee for tax purposes. The clawback of BRR will be triggered if any shares issued due to the transfer are sold, transferred, or disposed of to a non-member of the qualifying group within two years.
Overall, the BRR provides a framework for business restructuring that ensures both parties are taxable and meet specific criteria for eligibility. For more information on this topic, you can reach out to Mahar Afzal at mahar@kresscooper.com.