The introduction of UAE Corporate Tax under Federal Decree-Law No. 47 of 2022 has fundamentally reshaped how businesses structure and manage group transactions. Recognising that intra-group transfers often occur for commercial and operational reasons rather than tax arbitrage, the UAE Corporate Tax framework provides Qualifying Group Relief to ensure tax neutrality for genuine internal reorganisations.

This relief, governed by Ministerial Decision No. 132 of 2023 and further clarified under Qualifying Group Relief | CTGQGR1, allows qualifying transfers of assets and liabilities between group companies to occur without triggering immediate corporate tax consequences, provided specific conditions are met.

This article explains the scope, conditions, mechanics, and practical implications of Transfers Within a Qualifying Group, helping UAE businesses apply the relief correctly and confidently.

What Is Qualifying Group Relief?

Qualifying Group Relief allows for the transfer of assets and liabilities between members of the same qualifying group at their book value for UAE Corporate Tax purposes. As a result:

• No taxable gain or deductible loss arises at the time of transfer.
• The transaction is treated as tax-neutral.
• The ultimate economic ownership of the asset or liability remains within the qualifying group.

The relief ensures that corporate tax does not become an obstacle to legitimate internal restructurings, asset reallocations, or operational realignments within corporate groups.

Definition of a Qualifying Group

To benefit from the relief, both the transferor and transferee must be members of the same Qualifying Group. The key conditions include:

1. Ownership Threshold

• One entity must directly or indirectly own at least 75% of the ownership interest in the other, or
• A third entity must own at least 75% of both entities.

This ownership test must be satisfied throughout the relevant tax period and at the time of the transfer.

2. Taxable Persons

• Both entities must be juridical persons subject to UAE Corporate Tax.
• Natural persons do not qualify for this relief.

3. Accounting Consistency

• Group members must generally:
  • Follow the same accounting standards, and
  • Share the same financial year-end.
• unless otherwise permitted by the Federal Tax Authority.

This ensures consistent book values and prevents mismatches in the tax base.

4. No Change in Ultimate Ownership

• The transfer must not result in a change in the ultimate economic ownership of the asset or liability outside the qualifying group.

What Transfers Are Covered?

Qualifying Group Relief applies to transfers of:

• Tangible assets (e.g., property, plant, and equipment)
• Intangible assets (where recognised under accounting standards)
• Business units or divisions
• Contractual rights and obligations
• Liabilities transferred as part of a commercial restructuring

The relief applies only to assets and liabilities that are recognised for UAE Corporate Tax and accounting purposes, and only where all statutory conditions are met. It does not extend to arrangements designed primarily for tax avoidance.

Election to Apply the Relief

Qualifying Group Relief is not automatic.

• An election must be made in the corporate tax return for the tax period in which the transfer occurs.

• The election is transaction-specific and applies to the particular qualifying transfer. Once made, it is generally irrevocable in respect of that transfer.

Special Rule – Cessation of Taxable Status

If the transferor or transferee later ceases to be a taxable person or exits the qualifying group:

• Any deferred gains or losses may be clawed back or attributed, particularly if the qualifying group conditions cease to be met within two years from the date of transfer.
• This ensures that tax neutrality does not result in permanent tax avoidance.

Tax Treatment and Mechanics

When the relief is validly applied:

Transferor

• Does not recognise any taxable gain or deductible loss.
• The transfer is treated as occurring at book value.

Transferee

• Acquires the asset or liability at the same book value for tax purposes.
• Future depreciation, amortisation, or disposal is calculated using this carried-forward tax base.

Subsequent Disposal

If the transferee later sells the asset to a non-group entity, normal corporate tax rules apply at that time, and any previously deferred gain or loss becomes taxable.

Interaction With Other Corporate Tax Provisions

Business Restructuring Relief

Qualifying Group Relief is distinct from Business Restructuring Relief. Each relief has separate conditions and objectives. Businesses must assess which relief is appropriate based on the nature of the transaction.

Transfer Pricing & Anti-Avoidance

Even when Qualifying Group Relief applies:

• Transactions must reflect commercial substance.
• Transfer pricing rules and the General Anti-Abuse Rule continue to apply, ensuring the relief is not used for artificial tax outcomes.

Documentation & Compliance Requirements

German Fintax Consultancy strongly recommends maintaining comprehensive documentation, including:

• Legal transfer agreements
• Board resolutions and commercial rationale
• Accounting records showing book values
• Ownership charts confirming the 75% test
• Evidence of consistent accounting standards and financial year alignment or FTA approval where applicable

Robust documentation is essential to support the election and withstand any future FTA review.

Practical Example (Illustrative)

Company A owns 100% of Company B. Company A transfers a business division to Company B with a book value of AED 10 million.

• No gain or loss is recognised by Company A.
• Company B records the division at AED 10 million for tax purposes.

• Tax recognition is deferred, not eliminated, and corporate tax will arise if Company B disposes of the division outside the qualifying group.

Common Pitfalls to Avoid

• Failing to meet or evidence the 75% ownership requirement
• Mismatched accounting periods or accounting standards without FTA approval
• Missing or incorrect election in the tax return
• Insufficient commercial substance
• Inadequate documentation

How German Fintax Consultancy Can Help

German Fintax Consultancy assists UAE businesses with:

• Qualifying Group eligibility assessments
• Ownership and restructuring analysis
• Transaction structuring and tax modelling
• Preparation of elections and corporate tax returns
• Documentation support and audit defence
• Strategic advice on intra-group reorganisations

Frequently Asked Questions (FAQs)

Is Qualifying Group Relief automatic?
No. A formal election must be made in the corporate tax return.

Does the relief apply to share transfers?
No. Qualifying Group Relief applies to transfers of assets and liabilities. Share transfers fall outside the scope of Ministerial Decision No. 132 of 2023 and may be subject to separate corporate tax provisions.

What happens if group ownership changes later?
If the qualifying ownership conditions cease to be met, particularly within two years of the transfer, deferred gains or losses may be clawed back under the attribution rules.

Can the election be reversed?
Generally, the election is irrevocable.

Conclusion

Transfers Within a Qualifying Group provide a powerful mechanism for UAE businesses to restructure efficiently without immediate corporate tax exposure. However, the relief is highly technical, election-based, and documentation-driven.

With proper planning, compliance, and expert guidance, businesses can fully benefit from Qualifying Group Relief while remaining aligned with UAE Corporate Tax regulations.

German Fintax Consultancy stands ready to support your group restructurings with clarity, precision, and regulatory confidence.