What is the Ministerial Decision No. 133 of 2023

This decision on Business Restructuring Relief for Corporate Tax purposes further clarify the provisions of Article 27 of the Federal Decree Law No 47 of 2022.

Here is a summary of the key points outlined in the document:

1. 1. Transfers in Exchange for Shares and Other Consideration: A transfer will qualify for the conditions of Article 27 of the Corporate Tax Law if the market value of any additional consideration received, apart from shares or ownership interests, does not exceed the net book value of the transferred assets and liabilities or 10% of the nominal value of the ownership interests issued.
   2. Ownership Interest: The definition of ownership interest includes various instruments such as ordinary shares, preferred shares, redeemable shares, membership and partner interests, and other types of securities that entitle the owner to receive profits and liquidation proceeds. The classification of an ownership interest as equity is based on the Accounting Standards applied by the taxable person holding the interest.
   3. Election to Apply Business Restructuring Relief: The transferor must make an election to apply the provisions of Article 27 of the Corporate Tax Law to a transfer that meets the specified conditions. Both the transferor and transferee are required to maintain records as prescribed by the Authority.
   4. Transfer of Unutilized Tax Losses: Any unutilized tax losses incurred by the transferor before the transfer can become carried forward tax losses of the transferee, provided that the transferee continues to conduct the same or a similar business activity as the transferor. Factors for determining continuity include the use of the same assets, limited changes to the core identity or operations of the business, and the development or exploitation of existing assets, services, or products.
   5. Parties to the Transfer: For shares or ownership interests to qualify, the transfer must involve a person with a direct or indirect ownership interest of at least 50% in the transferor or transferee.
   6. Unincorporated Partnerships: In the case of an application by an unincorporated partnership to be treated as a taxable person, no gain or loss needs to be taken into account for determining taxable income, regardless of whether shares or ownership interests are received by the partners or if all partners are taxable persons.
   7. Subsequent Transfer: Any gain or loss resulting from the application of Article 27 shall be taken into account for calculating taxable income if shares or ownership interests are sold, transferred, or disposed of, or in the case of subsequent transfers or disposals of the transferred business or independent parts. Specific rules apply to attribute gains or losses to the transferee when the transferor ceases to be a taxable person or is a natural person.
   8. Record Keeping: Both the transferor and transferee must maintain records of the agreement to transfer the business or independent parts, as well as the prescribed value and adjustments under the Ministerial Decision on the general rules for determining taxable income, as per the requirements of the Corporate Tax Law.

 Call NR Doshi and Partners at +971 4 352 8001 or email us at enquiries@nrdoshi.ae. Schedule a consultation now.