Overview

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) was issued on 3 October 2022 and was published in Issue #737 of the Official Gazette of the United Arab Emirates (“UAE”) on 10 October 2022.

The Corporate Tax Law provides the legislative basis for imposing a federal tax on corporations and Business profits (“Corporate Tax”) in the UAE.

The provisions of the Corporate Tax Law apply to Tax Periods commencing on or after 1 June 2023.

Purpose of this guide

This guide is designed to provide general guidance on the Qualifying Group Relief available under Article 26 of the UAE Corporate Tax Law.

The guide provides the readers with an overview of the following in respect of Qualifying Group Relief:

• Transactions covered within the scope of the relief,

• Conditions to be eligible for the relief,

• Consequences of electing for the relief,

• Circumstances when the relief will be clawed back and consequences of clawback of the relief,

• Compliance requirements, and

• Interaction with other provisions of the UAE Corporate Tax Law.

This guide does not address Tax Groups, except where the Tax Group provisions interact with the provisions outlined above.

Who should read this guide?

The guide should be read by any Taxable Person intending to transfer one or more of its assets or liabilities to another Taxable Person who are both members of the same Qualifying Group.

It is intended to be read in conjunction with the Corporate Tax Law, the implementing decisions and other relevant guidance published by the FTA.

How to use this guide

The relevant articles of the Corporate Tax Law and the implementing decisions are indicated in each section of the guide.

It is recommended that the guide is read in its entirety to provide a complete understanding of the definitions and interactions of the different rules. Further guidance on some of the areas covered in this guide can be found in other topic- specific guides.

In some instances, simple examples are used to illustrate how key elements of the Qualifying Group Relief under the Corporate Tax Law apply. The examples in the guide:

• Show how these elements operate in isolation and do not show the interactions with other provisions of the Corporate Tax Law that may occur. They do not, and are not intended to, cover the full facts of the hypothetical scenarios used nor all aspects of the Corporate Tax regime, and should not be relied upon for legal or tax advice purposes, and

• Are only meant for providing the readers with general information on the subject matter of this guide. They are exclusively intended to explain the rules related to the subject matter of this guide and do not relate at all to the tax or legal position of any specific juridical or natural persons.

Legislative references

In this guide, the following legislation will be referred to as follows:

• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, and its amendments, is referred to as “Corporate Tax Law”;

• Cabinet Decision No. 56 of 2023 on Determination of a Non-Resident Person's Nexus in the State for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Cabinet Decision No. 56 of 2023”;

• Ministerial Decision No. 116 of 2023 on the Participation Exemption for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 116 of 2023”;

• Ministerial Decision No. 120 of 2023 on the Adjustments Under the Transitional Rules for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 120 of 2023”;

• Ministerial Decision No. 125 of 2023 on Tax Group for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 125 of 2023”;

• Ministerial Decision No. 132 of 2023 on Transfers Within a Qualifying Group for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 132 of 2023”;

• Ministerial Decision No. 134 of 2023 on the General Rules for Determining Taxable Income for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 134 of 2023”; and

• Federal Tax Authority Decision No. 5 of 2023 on Conditions for Change in Tax Period for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “FTA Decision No. 5 of 2023”.

Status of this guide

This guidance is not a legally binding document but is intended to provide assistance in understanding the provisions of Qualifying Group Relief under the Corporate Tax Law. The information provided in this guide should not be interpreted as legal or tax advice. It is not meant to be comprehensive and does not provide a definitive answer in every case. It is based on the legislation as it stood when the guide was published. Each Person's own specific circumstances should be considered.

The Corporate Tax Law, the implementing decisions and the guidance materials referred to in this document will set out the principles and rules that govern the application of Corporate Tax. Nothing in this publication modifies or is intended to modify the requirements of any legislation.

This document is subject to change without notice.

What is a transfer?

Ordinarily, a transfer refers to an act by which the legal and economic ownership in an asset or liability is conveyed from one Person to another. Examples of a transfer include, but are not limited to, the following transactions:

• Sale,

• Exchange,

• Relinquishment,

• Sale-and-lease back treated as a sale under Accounting Standards,

• Exercise of options to sell or acquire an asset or liability, and

• Transfer under universal title.

Where assets or liabilities are transferred to a Taxable Person as a result of liquidation, dissolution or merger (that is, an entity ceasing to have legal existence), ^[2] Qualifying Group Relief shall not apply. ^[3]

Assets and liabilities eligible for Qualifying Group Relief

Qualifying Group Relief applies only to the transfer of assets or liabilities held on capital account and recorded on the balance sheet of the Transferor. ^[4] The transfer of assets or liabilities which are not held on capital account (for example, inventory transferred as part of regular Business operations) is not within the scope of Qualifying Group Relief and hence, cannot benefit from the no gain or loss tax treatment. The general Corporate Tax rules, including the requirement to apply the arm's length standard on transfers between Related Parties, ^[5] apply in respect of the transfer of assets or liabilities between members of the Qualifying Group where they are not held on capital account on the balance sheet of the Transferor, or where the assets or liabilities transferred are held on capital account but the Transferor has not made an election for Qualifying Group Relief.

Assets and liabilities held on capital account should be interpreted in line with Article 20(4) of the Corporate Tax Law, ^[6] which provides the following:

• “Assets held on capital account” refers to assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under the applicable Accounting Standards as property, plant and equipment, investment property, Intangible Assets, or other non-current assets. ^[7]

• “Liabilities held on capital account” refers to liabilities, the incurring of which does not give rise to deductible expenditure under Articles 28 to 32 of the Corporate Tax Law [GTL Notes - Articles 28, 29, 30, 31 & 32 ], or liabilities treated under the applicable Accounting Standards as non- current liabilities. ^[8]

Whether an asset or liability is held on capital account depends on the facts and circumstances of each case. As the asset or liability is recognised in the Financial Statements of the Transferor, a key indicator will be whether it is treated as a long- term asset or liability under the applicable Accounting Standards.

An asset (tangible or intangible) held on capital account is generally understood as a long-term asset held for future economic benefit. Thus, the Transferor's intention and purpose of holding the asset is relevant when determining if the asset is capital in nature. For example, assets such as machinery, equipment, real estate or similar assets are usually considered to be held as long-term assets on capital account, provided that such assets are not held as inventory for purposes of the particular Business of the Transferor. A transfer of assets or liabilities which are not recognised in the Financial Statements of the Transferor (for example, a self-generated intellectual property, such as goodwill, brand or customer lists) would not fall within the scope of Qualifying Group Relief. However, whilst out of scope of Qualifying Group Relief, such assets and liabilities may, where the relevant conditions are met, benefit from Business Restructuring Relief under Article 27 of the Corporate Tax Law. ^[9] This is since these assets may be inseparable from the Business as a whole, and so a transfer of the Business may include a transfer of such assets.

A liability held on capital account may generally be understood as a liability intended to be held as a long-term liability. If a liability does not qualify as a current liability in the Financial Statements prepared by the Transferor under the applicable Accounting Standards, this is an indication of the Transferor's intention. But if a liability has been held as a long-term liability on capital account, but at the time of the transfer has become a current liability (for example due to the end of a fixed-term liability falling within one year of the balance sheet date), it will generally be considered as not being held on capital account.

Consideration for transfer

Qualifying Group Relief does not require any consideration to be paid. Where it is paid, it does not need to be in a specific form. Accordingly, no gain or loss treatment under Qualifying Group Relief can be available if the value of the consideration differs from the net book value or the Market Value or is paid by a Person other than the Transferee. Further, the consideration can be in cash or in kind.

Where the Transferee pays consideration in kind in the form of another asset or liability held on capital account, this constitutes an exchange transaction. An exchange of assets or liabilities between two members of the same Qualifying Group shall be treated as two separate transfers for the purposes of Qualifying Group Relief. ^[10] Since the relief applies on an asset-by-asset basis, in an exchange transaction, both transfers shall be tested separately to assess whether Qualifying Group Relief is available. Whether a clawback is triggered under Article 26(4)(a) of the Corporate Tax Law on one of the transfers in an exchange, shall also be tested on each transfer separately. Therefore, it is possible that a clawback applies on one of the transfers in an exchange of assets and liabilities, but not on the other transfer. See Section 5.5 for a detailed discussion on exchange transactions.

Juridical persons condition

Only a juridical person can be a member of a Qualifying Group. ^[17] A juridical person has a separate legal personality from its founders, owners and directors. Examples of juridical persons include companies (such as private or public joint stock companies or limited liability companies) and incorporated partnerships.

Natural persons carrying on Business as a sole establishment are not juridical persons and, therefore, cannot form or be in a Qualifying Group. Thus, a natural person cannot be a Transferor or Transferee for the purposes of Qualifying Group Relief.

Unincorporated Partnerships are a contractual relationship between two or more persons that do not have distinct legal personality separate from their partners/members. Given that Unincorporated Partnerships are not juridical persons in their own right, they cannot be part of a Qualifying Group. This applies even if an Unincorporated Partnership is treated as a Taxable Person after an application by its partners is approved by the FTA under Article 16(8) of the Corporate Tax Law, as this does not change the legal form of an Unincorporated Partnership.

A juridical person, who is a partner in an Unincorporated Partnership, can be a member of a Qualifying Group with other juridical persons (including juridical persons held by the Unincorporated Partnership). Accordingly, while an Unincorporated Partnership cannot be a Transferor or Transferee for the purposes of Qualifying Group Relief, the relief may be available to a juridical person who is a partner in an Unincorporated Partnership or to a juridical person who is held by an Unincorporated Partnership.

Taxable Persons condition

A juridical person can only be a member of a Qualifying Group if it is a Taxable Person that is: ^[18]

• A Resident Person, or

• A Non-Resident Person that has a Permanent Establishment in the UAE.

Under the Corporate Tax Law, a juridical person is a Resident Person where:

• It is incorporated or otherwise established or recognised under the applicable legislation of the UAE; ^[19] or

• It is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction but is effectively managed and controlled in the UAE. ^[20]

Where the Transferor or Transferee is a Resident Person under the UAE Corporate Tax Law, they can be a member of a Qualifying Group.

Further, a Non-Resident Person with a Permanent Establishment in the UAE can also be a member of a Qualifying Group. ^[21] Therefore, if a Non-Resident Person with a Permanent Establishment in the UAE transfers or is transferred assets or liabilities attributable to its Permanent Establishment to or from another Taxable Person within its Qualifying Group, this transfer could benefit from Qualifying Group Relief if the relevant conditions are met. This can also apply if assets or liabilities are transferred from one Permanent Establishment in the UAE to another Permanent Establishment in the UAE. In addition, Qualifying Group Relief can also apply if a Person becomes a Taxable Person for the first time as a result of the transfer, because the assets or liabilities transferred result in a Permanent Establishment in the UAE for the Transferee.

However, Qualifying Group Relief is not available for transfers between a Permanent Establishment in the UAE and its head office outside the UAE. Similarly, Qualifying Group Relief is not available if a Non-Resident Person transfers or is transferred assets or liabilities and these assets or liabilities are not attributable to a Permanent Establishment in the UAE. The assets attributable to the Permanent Establishment are those from which it derives profits, being those which the Permanent Establishment has economic ownership of, as determined by the use of the assets (including both tangible and intangible assets).

Example 1: Transfer of assets to a Non-Resident Person

Company A holds 100% of the shares of Company B. Company A is a Non- Resident Person with a Permanent Establishment in the UAE. Company B is a Resident Person.

Company B holds a loan receivable from a third party, which it transfers to Company A.

If the receivable can be attributed to Company A's Permanent Establishment in the UAE, the Taxable Person condition is met in relation to this transfer. However, if the receivable cannot be attributed to Company A's Permanent Establishment in the UAE, the Taxable Person condition is not met and Qualifying Group Relief will not be available.

A Non-Resident Person which derives State Sourced Income or has a nexus in the UAE is also a Taxable Person under the Corporate Tax Law. ^[22] However, such a Non- Resident Person cannot be a member of a Qualifying Group.

Ownership condition

The Transferor and Transferee shall be treated as members of the same Qualifying Group if: ^[23]

• The Transferor holds a direct or indirect ownership interest of at least 75% in the Transferee, or

• The Transferee holds a direct or indirect ownership interest of at least 75% in the Transferor, or

• A third Person holds a direct or indirect ownership interest of at least 75% in the Transferor as well as the Transferee.

What is an ownership interest?

The term “ownership interest” should be applied consistently with how it is applied in other parts of the Corporate Tax Law. ^[24] Any other guidance relating to this term when used in other parts of the Corporate Tax Law should similarly apply in the context of Qualifying Group Relief under Article 26 of the Corporate Tax Law.

An ownership interest can be understood as any equity or similar interest (for example, a partnership interest) that carries rights to the profits and liquidation proceeds of the Taxable Person (that is Transferor or Transferee or both where the ownership interest is held by a third Person).

A holding can qualify as an ownership interest for the purposes of Qualifying Group Relief only if it is treated as an equity interest under the Accounting Standards applied by the Taxable Person holding the ownership interest. ^[25] This ensures that the mere legal ownership of shares or other ownership interests is not sufficient, in case the Accounting Standards do not treat the ownership interest as an equity interest. ^[26]

Two Taxable Persons can also be in a Qualifying Group if a third Person holds an ownership interest of at least 75% in both the Transferor and Transferee. If that third Person is not a Taxable Person, the ownership interest should also be treated as an equity interest under the accounting standards applied by that Person. If that Person does not apply an accounting standard (for example because they are a natural person), the condition of common ownership can be met if the ownership interest held by such third Person would have been treated as an equity interest if such Person had applied Accounting Standards acceptable in the UAE.

An ownership interest can include, but is not limited to, holdings in any one or a combination of the following instruments: ^[27]

Type of instrument	Description
Ordinary Shares	Category of capital stock or equivalent ownership interest, which gives its owner, on a share-by-share basis, equal entitlement to voting rights, profits, and liquidation proceeds.
Preferred Shares	Category of capital stock or equity interest which gives its owner priority entitlement to profits and liquidation proceeds ahead of owners of Ordinary Shares.
Redeemable Shares	Category of capital stock or equity interest which the juridical person issuing this instrument has agreed to redeem or buy back from the owner of this instrument at a future date or after a specific event, for a predetermined amount or with reference to a predetermined amount.
Membership and Partner Interests	Equity interests owned by a member or a partner in the juridical person, which entitles the member or the partner to a share of the profits, determined with reference to the member's or the partner's capital contribution, and which may be transferred to others.
Islamic Financial Instrument or a combination of arrangements that form part of the same Islamic Financial Instrument	A financial instrument which is compliant with Sharia principles.

The above list of ownership instruments is illustrative. Other types of instruments which grant rights to the profits and liquidation proceeds of the Taxable Person (that is Transferor or Transferee or both where the ownership interest is held by a third Person) and are classified as an equity interest under the applicable Accounting Standards (or the accounting standards used by a third Person that is not a Taxable Person), may also qualify as ownership interests. For example, the definition of Ordinary Shares refers to capital stock which gives its owner equal entitlement to voting rights, profits, and liquidation proceeds. However, shares that do not carry voting rights but have rights to profits and liquidation proceeds can also qualify as an ownership interest, if classified as equity interests under the applicable Accounting Standards (or the accounting standards used by a third Person that is not a Taxable Person).

Ordinarily debt instruments do not qualify as an ownership interest. However, a debt instrument (including one convertible into equity) would be treated as an ownership interest if it is classified as an equity interest under the Accounting Standards applied by the Taxable Person holding the ownership interest (or the accounting standards used by a third Person that is not a Taxable Person).

Holder of ownership interest

For the purposes of Qualifying Group Relief, a Taxable Person shall be treated as holding an ownership interest where the following two conditions are met: ^[28]

• The ownership interest is controlled by that Taxable Person under the Accounting Standards applied by the Taxable Person, and

• That Taxable Person has the right to the economic benefits produced by the ownership interest under the Accounting Standards as applied by the Taxable Person.

With respect to the first condition relating to control, the meaning of 'control' is to be determined in accordance with the applicable Accounting Standard. On the basis of Accounting Standards, a Taxable Person shall be considered to be controlling the ownership interest of a judicial person (i.e. the investee) if and only if, it has all of the following:

• Power over the investee,

• Exposure, or rights, to variable returns from its involvement with the investee, and

• The ability to use its power over the investee to affect the amount of the investor's returns.

With respect to the second condition relating to the right to economic benefits, the Taxable Person holding the ownership interests in another juridical person must be the economic owner of 75% or more of the ownership interests. ^[29] A Taxable Person is the economic owner of an ownership interest when they have (or are entitled to) at least 75% of the benefits and burdens of ownership, including rights to profits, liquidation proceeds, or voting in respect of the ownership interests held, and they have not renounced or transferred such rights under another arrangement. Accordingly, if a Taxable Person holds the ownership interest in the capacity of an agent, nominee, fiduciary or administrator, so that they are simply a conduit for another Person who in fact is entitled to the benefits and burdens of ownership, the former is not the economic owner of the ownership interest.

The Transferor and Transferee can also be members of the same Qualifying Group if a third Person (i.e. a common shareholder) holds an ownership interest of at least 75% in both of them. ^[30] The common shareholder does not need to be a Taxable Person (see Section 4.3.5). Where the common shareholder is not a Taxable Person, it will still be required to have control and economic right over the ownership interests.

Example 2: Transfer of economic ownership

Company A holds 80% of the shares of Company B. Company A and Company B are Resident Persons. Company A enters into an agreement with a third party under which Company A transfers all control and economic entitlement relating to the shares of Company B to the third party. The legal ownership of the shares in Company B remains with Company A.

In this case, even though Company A legally holds 80% shares of Company B, Company A does not satisfy the ownership condition since it is not the economic owner of the shares. Hence Company A and Company B cannot be members of the same Qualifying Group.

Determining ownership percentage

The percentage of ownership must be calculated as:

Percentage of ownership (PO) = X Y * 100

X = Paid-up capital of ownership interests held by or the equity interest contributions made by the Transferor or Transferee or a third Person, as applicable (depending on which entity is holding shares in the Taxable Person for the purposes of assessing the conditions of a Qualifying Group). Different types of ownership interests held in the same Taxable Person can be aggregated for the purposes of determining the percentage of ownership.

Y = Total paid-up capital of the Taxable Person or the total equity interest contributions made to the Taxable Person, as applicable. ^[31] The Taxable Person here can be the Transferor or Transferee depending on which entity's shares are being held. ^[32]

Ownership interests may carry rights to profits and liquidation proceeds in different percentages. For example, an ownership interest may carry a right to 80% of the profits of an entity but only 10% of the liquidation proceeds. Such differential rights in ownership interests do not impact the ownership condition since the percentage of ownership interest held is determined with reference to the paid-up capital of the Transferor and/or the Transferee, provided that an ownership interest as described in 4.3.1 above, is held, i.e. provided that the ownership interest qualifies as an equity interest under applicable Accounting Standards. ^[33]

Example 3: Computing the percentage of ownership

Company A has paid-up share capital of AED 10,000:

• AED 1,000 towards Ordinary Shares, and

• AED 9,000 towards Preferred Shares.

Company B holds 100% of the Ordinary Shares in Company A and does not hold any Preferred Shares.

• Paid-up capital of ownership interest held by Company B (X): AED 1,000.

• Total paid-up capital of Company A (Y): AED 10,000 (Ordinary and Preferred Share capital together).

Company B's percentage ownership: (1,000/10,000) *100=10%

Accordingly, Company B's ownership interest amounts to only 10% of the total paid-up share capital in Company A, i.e. Ordinary and Preferred Share capital together. Hence, Company A and Company B cannot be members of a Qualifying Group.

Indirect ownership

The ownership condition is met even if the 75% of the ownership interest is held indirectly. Thus, the ownership condition is met even if: ^[34]

• The Transferor indirectly holds at least 75% of ownership interests in the Transferee or

• The Transferee indirectly holds at least 75% of ownership interests in the Transferor, or

• A third Person indirectly holds at least 75% of ownership interests in the Transferor as well as the Transferee.

Where the ownership interest in the Transferor or Transferee is held indirectly through a non-wholly owned intermediary, the holding in the Transferor or Transferee should be counted proportionately i.e. in proportion to the holding in the intermediate non- wholly owned intermediary.

Example 4: Indirect holding through non-wholly owned intermediary

Company A holds a 75% ownership interest in Company B and Company B holds a 75% ownership interest in Company C. Accordingly, Company A's indirect holding in Company C is 56.25% (75% of 75%). All three companies are incorporated and resident in the UAE.

Assuming that all the other conditions are met, Company B is in a Qualifying Group with Company A. Company B is also in another Qualifying Group with Company C. However, Company A and Company C are not part of the same Qualifying Group since the 75% ownership condition is not met.

As shown by this example, it is possible that a Taxable Person can be simultaneously a member of multiple Qualifying Groups.

Where the ownership interest is held indirectly through one or more intermediaries, it is not necessary that the intermediary is also a member of the Qualifying Group. For example, if the Transferor indirectly holds 75% ownership interest in the Transferee through an Exempt Person or a Qualifying Free Zone Person, the ownership condition for Qualifying Group Relief is still satisfied.

Example 5: Indirect holding through a foreign company

Company A holds 90% of the shares of Company B and Company B in turn holds 90% of the shares of Company C. Company A and Company C are incorporated and resident in the UAE. Company B is incorporated and managed outside the UAE and does not have a Permanent Establishment in the UAE. Therefore, Company B is not a Taxable Person under the Corporate Tax Law.

Company A and Company C can be members of a Qualifying Group since Company A indirectly holds 81% shares of Company C (90% of 90%). However, Company B cannot be a member of this Qualifying Group since it is not a Taxable Person under the Corporate Tax Law.

Ownership by a common third Person in Transferor and Transferee

The ownership condition is met where a third Person (i.e. a common shareholder) holds a direct or indirect ownership interest of at least 75% in the Transferor as well as the Transferee. ^[35] The term 'third Person' means that the common shareholder is not required to be a Taxable Person. In other words, where a Person is not a Taxable Person (for example, a natural person or a foreign company that is not a Taxable Person under Article 11 of the Corporate Tax Law) and holds a direct or indirect ownership interest of at least 75% in the Transferor and the Transferee, the Transferor and Transferee are members of a Qualifying Group. Because the third Person is not a Taxable Person, it is not itself a member of a Qualifying Group.

If a common shareholder has a Permanent Establishment in the UAE, it would be a Taxable Person (as a Non-Resident Person) and it would be a member of the Qualifying Group and transfers to or from that Permanent Establishment could be eligible for Qualifying Group Relief. ^[36] However, where the common shareholder does not have a Permanent Establishment in the UAE, but is a Taxable Person (as a Non- Resident Person) as a result of earning State Sourced Income or a nexus in the UAE as specified in Cabinet Decision No. 56 of 2023, ^[37] it cannot be a member of a Qualifying Group even though it is a Taxable Person under the Corporate Tax Law. ^[38]

Example 6: Foreign company holding shares in Transferor and Transferee

Company F is a company incorporated and managed outside the UAE and does not have a Permanent Establishment in the UAE. Company F holds 100% of the shares of Company M and Company N (both are companies incorporated and resident in the UAE).

Based on this, Company M and Company N can be members of a Qualifying Group as there is a common shareholder that holds at least 75% of the shares in both entities. This would also be the case if Company F held the shares in Company M or Company N indirectly through another company. However, Company F cannot be a member of the Qualifying Group since it is neither a Resident Person nor a Non-Resident Person with a Permanent Establishment in the UAE.

Aggregation of ownership by Tax Group

For the ownership condition, the direct and indirect ownership interests held by members of the same Tax Group shall be determined by aggregating the ownership interests of the Parent Company and each Subsidiary that is a member of the Tax Group. ^[39]

Example 7: Holding by a Tax Group

Company A holds 95% of the shares of Company B. Company A and Company B are members of a Tax Group under Article 40 of the Corporate Tax Law (as distinct from a Qualifying Group under Article 26 of the Corporate Tax Law). Company B holds 75% of the shares of Company C. Company A, Company B and Company C are incorporated and resident in the UAE.

Company A indirectly holds 71.25% of the shares in Company C (i.e. 95% of 75%). Hence on a standalone basis, Company A and Company C are not members of a Qualifying Group.

However, because Company A and Company B are members of a Tax Group, the ownership condition under Article 26(2)(b) of the Corporate Tax Law is to be determined on an aggregate basis for the Tax Group. ^[40] On an aggregate basis, Company C and the Tax Group formed by Company A and Company B are members of the same Qualifying Group. Thus, a transfer from Company A to Company C, for instance, could potentially benefit from Qualifying Group Relief.

Exempt Person condition and Qualifying Free Zone Person condition

Qualifying Group Relief is intended to be applicable to Taxable Persons which are subject to Corporate Tax in a similar manner. In line with this principle, an Exempt Person according to Article 4 of the Corporate Tax Law or a Qualifying Free Zone Person according to Article 18 of the Corporate Tax Law cannot be a member of a Qualifying Group. ^[41]

By contrast, a Taxable Person that is a Free Zone Person but not a Qualifying Free Zone Person can be a member of a Qualifying Group. In other words, the mere fact that a Taxable Person is incorporated or established in a Free Zone does not prevent it from being a member in a Qualifying Group.

Where a member of a Qualifying Group becomes an Exempt Person or a Qualifying Free Zone Person in a subsequent Tax Period, that Person will cease to be a member of the Qualifying Group from the date on which the condition is no longer met. If a Taxable Person becomes an Exempt Person or Qualifying Free Zone Person retroactively from the start of a Tax Period, they would cease to be a member of the Qualifying Group as of the start of that Tax Period.

Where a Resident Person elects for Small Business Relief, it is not entitled to apply the provisions of Article 26 of the Corporate Tax Law. ^[42]

Financial Year condition

A Qualifying Group requires the Financial Year of all members to end on the same date. ^[43] Consequently, all members of the Qualifying Group should have a Tax Period that ends on the same date.

Under the Corporate Tax Law, the Financial Year is defined as either the Gregorian calendar year (beginning on 1 January and ending on 31 December) or a 12-month period for which Financial Statements are prepared. ^[44]

If a Taxable Person meets all the conditions to be a member of a Qualifying Group except for the Financial Year condition, that Person may choose to change its Financial Year to align the end date of its Financial Year with other members of the Qualifying Group by making an application to the FTA, subject to the following conditions: ^[45]

• The Taxable Person has not yet filed the Tax Return for the Tax Period it is applying to change, ^[46]

• The Tax Period is not extended to last more than 18 months or not reduced to last less than 6 months, ^[47]

• Where the Taxable Person filed an application to shorten a Tax Period, the application is not in respect of a prior or current Tax Period, ^[48]

• The application is made before the lapse of 6 months from the end of the original Tax Period. ^[49]

Further, the Financial Year condition requires that the Financial Year of all members of the Qualifying Group must end on the same date. ^[50] This does not necessarily require all members of a Qualifying Group to have the same Financial Year or Tax Period. For example, if a Taxable Person has a longer or shorter Financial Year as compared to other members of the Qualifying Group, the Financial Year condition is met so long as the longer or shorter Financial Year ends on the same date as other members.

Accounting Standards condition

All members of a Qualifying Group must prepare their Financial Statements using the same Accounting Standards. ^[51] For the purposes of the UAE Corporate Tax Law, a Taxable Person is required to prepare Financial Statements based on IFRS. ^[52] Where the Revenue of the Taxable Person does not exceed AED 50 million, they may choose to apply IFRS for SMEs instead. ^[53] The condition would not be met if one Taxable Person uses IFRS and another Taxable Person uses IFRS for SMEs.

It is possible that a Taxable Person meets all the conditions to be a member of a Qualifying Group except the Accounting Standards condition because it prepares its Financial Statements under IFRS for SMEs whereas other members apply (full) IFRS. In such a case, the Taxable Person may choose to prepare its Financial Statements under (full) IFRS to align with other members of the Qualifying Group. This does not require any application to be made to the FTA.

Further, the Accounting Standards condition is not a requirement to follow the same accounting policies in the standalone Financial Statements. Thus, even if all members of the Qualifying Group use the same Accounting Standards, each member may follow different accounting policies, if those policies are permitted under the relevant Accounting Standards.

Transfer of assets and liabilities at net book value

Where an asset or liability is transferred on a no gain or loss basis under Article 26(1) of the Corporate Tax Law, the asset or liability will be treated as transferred at its net book value at the date when the transfer transaction takes place. ^[54] Accordingly, at the level of the Transferor, there would be no taxable gain or loss on transfer of the asset or liability.

Determining the net book value of an asset or liability

The net book value of an asset or liability is generally the cost of the asset or liability after deducting any accumulated depreciation and amortisation and any other value adjustments that have been processed in the Financial Statements.

Thus, if the Financial Statements of the Transferor recognise depreciation or amortisation up to the date of a transfer which occurred during a Tax Period, the depreciation or amortisation will reduce the net book value of the assets and liabilities transferred by the Transferor. As a result, the depreciation and amortisation can reduce the Taxable Income of the Transferor for the period up to the transfer of the asset or liability, even if the transfer itself does not trigger a gain or loss.

Where an asset or liability is transferred on a no gain or loss basis under Article 26(1) of the Corporate Tax Law, the Transferor shall treat the consideration received as being equal to the net book value. ^[55] To the extent consideration paid differs from the net book value of the asset or liability, the difference is ignored for the calculation of both the Transferor's and Transferee's Taxable Income.

Adjustments to Taxable Income of the Transferee

In cases other than realisation, the Transferee shall adjust its Taxable Income to exclude depreciation, amortisation or other change in the value of the transferred assets and liabilities to the extent that it relates to the gain or loss that arose to the Transferor and was not recognised for Corporate Tax purposes as a result of the no gain or loss treatment being applied. ^[56]

Upon realisation of the assets and liabilities, the Transferee will need to include any amount that has not been recognised for Corporate Tax purposes under application of Article 26(1) of the Corporate Tax Law. This will not apply to an amount that arose prior to the most recent acquisition where Article 26(1) of the Corporate Tax Law did not apply. ^[57] For these purposes, realisation includes the sale, disposal, transfer, settlement and complete worthlessness of any asset and the settlement, assignment, transfer and forgiveness of any liability, but does not include the no gain or loss transfers under Articles 26 or 27 of the Corporate Tax Law. ^[58]

In case there have been several transfers on a no gain or loss basis, all the gains and losses in relation to those transfers would need to be included upon realisation, unless these amounts had already been adjusted or included in the Taxable Income as a result of a clawback. ^[61] In addition, if depreciation, amortisation or other change in the value of the transferred assets and liabilities was previously excluded from the Taxable Income of the Transferee, such depreciation, amortisation or other change in the value is included in the Taxable Income upon realisation (as illustrated in Section 5.4). ^[62]

If a clawback under Article 26(4) of the Corporate Tax Law is triggered in relation to a no gain or loss transfer, this is treated as a realisation of the asset or liability and the resulting gain or loss should be included in the Taxable Income of the Transferor of the transaction for which the clawback was triggered in the Tax Period when the event or circumstance giving rise to the clawback occurs. ^[63] See Section 6 for consequences on clawback of Qualifying Group Relief.

Effect of several transfers on net book value

If there has been a previous transfer on a no gain or loss basis under Article 26(1) of the Corporate Tax Law, it is possible that a disposal will trigger a gain or loss that was previously not taken into account. In such cases, the income on disposal should be adjusted for that amount. ^[64]

Exchange of assets or liabilities

In case the consideration paid by the Transferee for the transfer of an asset or liability within a Qualifying Group is in the form of another asset or liability held on capital account, the transaction would be treated as two separate transfer transactions for the purposes of Article 26 of the Corporate Tax Law, and thus the Qualifying Group Relief would apply separately to each transfer, provided the relevant conditions are met. ^[75] In such a case, the no gain or loss transfer would apply to both transfers if at least one of the Taxable Persons involved in the transfer transaction has elected for the application of the relief. ^[76]

In other words, in the case of an exchange of assets or liabilities between a Taxable Person who has elected to apply Article 26 of the Corporate Tax Law and another Taxable Person who has not, the no gain or loss treatment would apply to both transfers, if the relevant conditions are met.

However, if an asset or liability held on capital account is transferred in exchange for an asset or liability which is not held on capital account, the no gain or loss treatment shall only be available to the transfer of the capital asset or liability if the Transferor of the asset or liability held on capital account has elected to apply Article 26 of the Corporate Tax Law and the no gain or loss treatment will not apply to the asset which is not held on capital account.

In case of an exchange of assets or liabilities to which Article 26 of the Corporate Tax Law applies, a difference between the net book value of such assets or liabilities is ignored when calculating Taxable Income.

Transfer of losses

Qualifying Group Relief does not permit Tax Losses to be transferred to the Transferee. In relation to the transfer of Tax Losses, the provisions of Article 38 of the Corporate Tax Law would apply.

Consequences of not meeting the requirements or not electing for Qualifying Group Relief

Article 26(1) of the Corporate Tax Law does not apply to all transfers of assets or liabilities between two Taxable Persons. If the conditions for a no gain or loss transfer are not met or if the Transferor has not elected for application of Article 26 of the Corporate Tax Law, the transaction would be outside of the scope of Qualifying Group Relief. If such a transfer is between Related Parties, which will typically be the case where a Qualifying Group could be formed, the transfer is a transaction that should meet the arm's length standard. ^[78] This means the gain or loss resulting from the transfer should be determined based on the Market Value of the asset or liability being transferred.

If a transfer of assets or liabilities is not between Related Parties, the gain or loss on such a transfer should be determined based on the standalone Financial Statements prepared by the Taxable Persons in accordance with the applicable Accounting Standards. ^[79]

Circumstances where relief is clawed back

Subsequent transfer of the asset or liability outside the Qualifying Group

For the purposes of considering whether there has been a transfer outside of the Qualifying Group, the relevant Qualifying Group is the one in respect of which the Transferor and the Transferee are both members. The determination of whether the subsequent transfer is within the same Qualifying Group, must be considered at the time of the subsequent transfer.

The Qualifying Group Relief will be clawed back if, within two years of the transfer, there is a subsequent transfer of the asset or liability outside of the Qualifying Group. ^[84] The reason for subsequent transfer outside of the Qualifying Group is not relevant. For example, the clawback can be triggered even if the Transferee ceases to exist upon liquidation or on merger and the relevant asset or liability is transferred outside of the Qualifying Group as a distribution of liquidation proceeds or as consideration for a merger transaction.

The clawback is not triggered if the subsequent transfer of the asset or liability is within the Qualifying Group. The reference to “the Qualifying Group” is to the Qualifying Group to which both the original Transferor and original Transferee belong. In other words, the condition under Article 26(4)(a) of the Corporate Tax Law will not be met if the original Transferor, original Transferee and the new Transferee are all members of the same Qualifying Group at the time of the second transfer (or any subsequent transfer).

The clawback is not triggered if the new Transferee was not a member of this Qualifying Group at the time of original transfer provided it is a member of the Qualifying Group when the asset or liability is transferred to it.

Example 13: Transfer outside the Qualifying Group

Company A holds a 75% ownership interest in Company B and Company B holds a 75% ownership interest in Company C. The other conditions for a Qualifying Group are met such that Company B is in a Qualifying Group with Company A. Company B is also in another Qualifying Group with Company C. However, Company A and Company C are not in the same Qualifying Group since Company A's indirect holding in Company C is 56.25% (75% of 75%) which means the 75% ownership condition is not met.

In January 2025, Company A transfers an asset to Company B on a no gain or loss basis. In March 2026, Company B transfers the same asset to Company C on a no gain or loss basis. Company A, Company B, Company C follow the Gregorian calendar year as their Tax Period.

Even though Company B and Company C are members of a Qualifying Group, the subsequent transfer of the asset to Company C in March 2026 will trigger a clawback of the no gain or loss tax treatment of the first transfer. This is because the subsequent transfer of the asset is outside the original Qualifying Group in which Company A and Company B (the original Transferor and original Transferee) are members.

Transferor or Transferee cease to be members of Qualifying Group

The Qualifying Group Relief is clawed back if, within two years of the transfer, the Transferor or Transferee cease to be members of the same Qualifying Group. ^[85]

Some examples where the Transferor and Transferee cease to be members of a Qualifying Group are:

• A change in the ownership of the Transferor or Transferee which results in failure of the ownership condition discussed in Section 4.3.

• The transferor or Transferee cease to be a Taxable Person, for example:

  • The Transferor or Transferee was a Non-Resident Person having a Permanent Establishment in the UAE, but the Permanent Establishment ceases to exist,

  • The Transferor or Transferee was a Resident Person but then ceases to be a Taxable Person (for instance, if a company incorporated outside the UAE stops being controlled and managed in the UAE without having a Permanent Establishment in the UAE), or

  • The Transferor or the Transferee ceases to exist.

• The Transferor or Transferee becomes an Exempt Person in a subsequent Tax Period or becomes a Qualifying Free Zone Person for a Tax Period and does not elect out of the Free Zone regime under Article 19 of the Corporate Tax Law.

• The Transferor or Transferee changes their Financial Year such that the end date no longer aligns with the other member(s) of the Qualifying Group.

Example 14: Trigger of clawback where a Tax Group ceases to exist

Company A holds 95% of the shares of Company B. Company A and Company B are members of a Tax Group under Article 40 of the Corporate Tax Law (as distinct from a Qualifying Group under Article 26 of the Corporate Tax Law). Company B holds 75% of the shares of Company C. Company A transfers an asset to Company C. Company A, Company B and Company C are incorporated and resident in the UAE.

Company A indirectly holds 71.25% of the shares in Company C (i.e. 95% of 75%). Hence, on a standalone basis, Company A and Company C are not members of a Qualifying Group.

However, because Company A and Company B are members of a Tax Group, the ownership condition under Article 26(2)(b) of the Corporate Tax Law is determined on an aggregate basis for the Tax Group. ^[86] On an aggregate basis, Company C and the Tax Group formed by Company A and Company B are members of the same Qualifying Group. Hence, the transfer of the asset by Company A to Company C is covered by Qualifying Group Relief.

However, if the Tax Group between Company A and Company B ceases to exist within 2 years from the date of transfer, the no gain or loss tax treatment will be clawed back under Article 26(4)(b) of the Corporate Tax Law because of the Transferor and Transferee ceasing to be members of the Qualifying Group.

Not all changes to the Qualifying Group would trigger a clawback, only changes that result in the Transferor and Transferee no longer being members of the Qualifying Group. For example, the clawback may not be triggered if the Transferor and Transferee continue to remain members of the same Qualifying Group in the following circumstances:

• More members join the Qualifying Group without impacting the ownership of the Transferor and Transferee, or

• The Transferor and Transferee are acquired by a third Person at the same time without affecting the ownership requirement, or

• Other members of the Qualifying Group (other than Transferor and Transferee) are sold or liquidated.

Example 15: Change in ownership structure that does not trigger change in Qualifying Group

Company M holds 100% of the shares of Company N. Both companies are incorporated and resident in the UAE. Company M and Company N are members of a Qualifying Group and follow the Gregorian calendar year (i.e. year ending on 31 December) as their Tax Period. The companies have not elected to form a Tax Group under Article 40 of the Corporate Tax Law. In the Tax Period 2024, the following events take place:

Date	Description
31 March 2024	Company M transfers an asset to Company N on a no gain or loss basis.
1 June 2024	Company M incorporates a new wholly owned subsidiary outside the UAE (Company F). Company F is not a Taxable Person in the UAE.
1 December 2024	Company M transfers shares of Company N to Company F.

Even though Company F is not a member of the Qualifying Group (since it is not a Taxable Person), Company M and Company N continue to be members of the Qualifying Group since Company M indirectly holds 100% shares in Company N. Accordingly, a clawback is not triggered.

If, after a transfer benefiting from Qualifying Group Relief, the Transferee transfers the relevant asset or liability to another Taxable Person within the Qualifying Group without triggering a clawback under Article 26(4)(a) of the Corporate Tax Law, the clawback under Article 26(4)(b) of the Corporate Tax Law would be triggered if the original Transferor, the original Transferee and the new Transferee cease to be in a Qualifying Group within two years from the date of the original transfer, as illustrated below.

Example 16: Clawback triggered in case of a subsequent transfer

Company A holds 100% of the shares in Company B. Company B holds 75% of the shares in Company C. Company A, Company B, and Company C are all incorporated and resident in the UAE. All 3 companies are members of a Qualifying Group and follow the Gregorian calendar year as their Tax Period. In the Tax Periods 2025 and 2026, the following events take place:

Date	Description
1 January 2025	Company A transfers an asset to Company B on a no gain or loss basis.
31 December 2025	Company B transfers the same asset to Company C on a no gain or loss basis.
31 March 2026	Company A transfers 25% of the shares in Company B to a third party.

On the date of the subsequent transfer (31 December 2025), Company A, Company B and Company C are members of the same Qualifying Group. Therefore, this subsequent transfer from Company B to Company C does not trigger a clawback under Article 26(4) of the Corporate Tax Law.

On 31 March 2026, Company A and Company C cease to be members of the same Qualifying Group since Company A then indirectly holds 56.25% (75% of 75%) of the shares of Company C, which is less than 75%. As there is no transfer of asset on that date, the clawback under Article 26(4)(a) of the Corporate Tax Law does not apply.

The clawback under Article 26(4)(b) of the Corporate Tax Law is triggered if the Taxable Persons cease to be members of the same Qualifying Group. As both Company A and Company C are relevant Taxable Persons, the clawback would be triggered if they cease to be members of the same Qualifying Group. Although the original Transferor (Company A) and the original Transferee (Company B) of the transfer on 1 January 2025 continue to be in a Qualifying Group, Company A would no longer be in a Qualifying Group with Company C as of 31 March 2026. Therefore, the clawback is triggered.

Consequences of clawback of Qualifying Group Relief

Election by Transferor

The no gain or loss treatment within the Qualifying Group is only available if the Transferor makes an election to apply the provisions of Article 26 of the Corporate Tax Law to a transfer that meets the conditions. ^[99] The election should be made in the Tax Return for the Tax Period in which the transfer, to which the Taxable Person wishes to apply Article 26 for the first time, takes place. ^[100] In other words, the election should coincide with the tax reporting of the Tax Period in which the Transferor, for the first time, transfers any of its assets or liabilities to a member of a Qualifying Group.

Once an election is made by the Transferor, it is irrevocable in the hands of the Transferor and cannot be reversed without the FTA's approval. ^[101] Thus, the election will apply not only to the specific transfer in respect of which it was made, but instead to all transfers of assets and liabilities held on capital account by the Transferor within a Qualifying Group which take place in the Tax Period for which the election was made, as well as any transfers in subsequent Tax Periods. ^[102]

Further, the election is valid only if it is made in respect of a transfer that meets the conditions of Qualifying Group Relief. If the Transferor makes an election in respect of a transfer to a member of a Qualifying Group, but subsequently, during audit, it is determined that the transfer does not meet the conditions of Qualifying Group Relief, the election will be treated as invalid and any Tax Return in which Qualifying Group Relief was applied on the assumption that a valid election was made would be incorrect. If the Transferor has tried to make an election, but the election is invalid, an election can be made in a subsequent Tax Period if the relevant conditions are met in that Tax Period. However, if the Transferor has validly made an election in a Tax Period, it is not possible to make an election in subsequent Tax Periods.

An election made by the Transferor shall not be binding on any future transfer of the same asset or liability by another member of the Qualifying Group unless that other member had itself previously made an election in this regard, i.e. each Transferor in a Qualifying Group is required to make its own election, except in relation to an exchange of assets as contemplated in Article 4 of Ministerial Decision No. 132 of 2023.

Record keeping

Both the Transferor and the Transferee are required to maintain a record of the agreement to transfer the asset or liability and evidence of the value prescribed under Article 26 of the Corporate Tax Law. ^[103] Additionally, the Transferee must document the requirements necessary for making any adjustments prescribed under Ministerial Decision No. 134 of 2023. ^[104]

Business Restructuring Relief

A transaction can be eligible for both Qualifying Group Relief and Business Restructuring Relief where all the following conditions are met:

• A Transferor transfers its Business or an independent part of its Business to a Transferee,

• The Transferor continues to exist after the transfer,

• The consideration for the transfer is paid in the form of shares or ownership interests of the Transferee or a Person that has a direct or indirect ownership interest of at least 50% in the Transferee, and

• The Transferor and Transferee are members of a Qualifying Group.

In such a case, the Transferor can elect for Business Restructuring Relief. However, it is possible that the Transferor in the past already elected for Qualifying Group Relief on each asset and liability (that is held on capital account) and, hence, Qualifying Group Relief is also applicable on the assets and liabilities which are transferred as part of the Business restructuring. If an election has been made for Qualifying Group Relief or Business Restructuring Relief, the transaction will be subject to the condition of that elected relief. This also means that if a clawback is triggered, the relief would be clawed back even if the conditions for a different relief would have been met and would not have resulted in a clawback being triggered. ^[105]

If a Transferor has elected for Qualifying Group Relief and it also makes an election for Business Restructuring Relief in respect of a specific Business restructuring, the no gain or loss treatment would be clawed back in the case of a clawback triggered by either of the reliefs. For instance, if the Transferor and the Transferee cease to be in a Qualifying Group within two years of applying Qualifying Group Relief, the no gain or loss treatment would be clawed back, even if no clawback is triggered for Business Restructuring Relief. ^[106] Similarly, if the Transferee transfers an independent part of the Business it has received within two years of a restructuring that attracted Business Restructuring Relief, the no gain or loss treatment would be clawed back on any Business or independent part of the Business transferred, even if no clawback is triggered for Qualifying Group Relief. ^[107] Once a clawback has been triggered, the no gain or loss treatment no longer applies which also means that any subsequent events would no longer trigger an additional clawback.

Realisation basis

A Taxable Person that prepares its Financial Statements on an accrual basis may elect to take into account gains and losses on a realisation basis if the relevant conditions are met. ^[108] The election can apply on either (a) all unrealised accounting gains and losses, ^[109] or (b) only unrealised gains and losses in relation to those assets and liabilities held on the Taxable Person's capital account. ^[110] If an election is made, the Taxable Person will make adjustments to ensure the Taxable Income is calculated as if the Financial Statements were prepared on a realisation basis. ^[111] A Taxable Person will decide in its first Tax Period whether to make an election and the decision is irrevocable, except under exceptional circumstances and pursuant to approval by the FTA. ^[112]

A no gain or loss transfer of assets or liabilities under Qualifying Group Relief shall not be considered as a realisation of the assets or liabilities. ^[113]

Where a Transferee has received assets and liabilities on a no gain or loss basis under Qualifying Group Relief, the Taxable Income of the Transferee would be determined by making the adjustments outlined in Ministerial Decision No. 134 of 2023 (see Section 5.3). ^[114] If the Transferee has elected for the realisation basis under Article 20(3) of the Corporate Tax Law, the depreciation, amortisation or other change in value adjusted in previous Tax Period(s) and any gain or loss that was not taken into account due to Qualifying Group Relief would be taken into account at realisation. ^[115]

Transitional relief

A Taxable Person's opening balance sheet for Corporate Tax purposes is the closing balance sheet prepared for financial reporting purposes under applicable Accounting Standards on the last day of the Financial Year that ends immediately before its first Tax Period commences. ^[116] Further, adjustments can be made to the Taxable Income of a Taxable Person in respect of gains recognised on Immovable Property, Intangible Assets and Financial Assets and Financial Liabilities owned prior to the Taxable Person's first Tax Period. ^[117]

When determining whether these assets were owned prior to the first Tax Period and for assessing the ownership period, ^[118] ownership of the asset by all members of the Qualifying Group should be considered. ^[119] Thus, ownership by a Taxable Person of the relevant assets shall include the ownership by any other member of the Qualifying Group for purposes of applying the transitional rules.

If an asset or liability is transferred on a no gain or loss basis within a Qualifying Group after Corporate Tax has entered into force, the transfer is not a disposal for the purposes of the transitional relief, ^[120] and the ownership period of such an asset and liability is considered to continue and include the ownership period of the Transferee under Article 26(1) of the Corporate Tax Law. ^[121]

However, if the clawback provisions of Article 26(4) of the Corporate Tax Law apply, the asset or liability is considered to be disposed of in the Tax Period when the original transfer took place since the clawback disapplies the Qualifying Group Relief. However, since upon clawback of relief, the gain or loss is included in the Taxable Income in the Tax Period of clawback, the transitional relief should be claimed in the Tax Period when clawback is triggered. There is no need to reopen the earlier Tax Period when the original transfer took place.

In relation to Immovable Property, there are two methods to compute the excluded amount of gains and the Taxable Person can choose either of the methods.

• Valuation method: The excluded amount is the amount of the gain that would have arisen had the Immovable Property been disposed of at Market Value at the start of the first Tax Period, and considering the cost of the Qualifying Immovable Property as the higher of the original cost and the net book value. ^[122]

• Time apportionment method: The excluded gain is calculated based on the period elapsed between the time the asset was purchased and the start of the first Tax Period. ^[123]

In relation to Intangible Assets, only the time apportionment method applies.

While applying transitional relief to Immovable Property and Intangible Assets, for the purpose of calculating the excluded amount of gain under the time apportionment method, the period of ownership includes the period of ownership by any member of the same Qualifying Group of the Taxable Person that has acquired the relevant assets in accordance with Qualifying Group Relief. ^[124] Any period of ownership before the most recent Non-Qualifying Transfer is excluded. ^[125] A Non-Qualifying Transfer is a transfer that is not covered, or would not have been covered had the Corporate Tax Law been effective, by the Qualifying Group Relief. ^[126]

There is only one method available for computing the excluded gain or loss on Financial Assets and Financial Liabilities owned prior to the first Tax Period under transitional relief. The Taxable Person excludes the amount of the gain or loss that would have arisen at the start of the first Tax Period, had the Financial Assets or Financial Liabilities been disposed of at Market Value and considering the cost of these assets or liabilities as being equal to the net book value. ^[127] While considering Financial Assets and Financial Liabilities owned by a Taxable Person, ownership by a member of the same Qualifying Group of the Taxable Person should be considered. ^[128]

Transitional relief can apply only where the Taxable Person has made an election in the first Tax Period to adjust their Taxable Income to exclude gains or losses related to the periods preceding the first Tax Period from the disposal of Immovable Property, Intangible Assets and Financial Assets and Financial Liabilities owned prior to the Taxable Person's first Tax Period. Where a Taxable Person has made an election for transitional relief in its first Tax Period and transfers any asset or liability that is eligible for the transitional relief on a no gain or loss basis to a Transferee under Qualifying Group Relief, such Transferee will be eligible for transitional relief on disposal of such asset or liability even if the Transferee has not made an election for transitional relief.