Restructuring a company often involves many difficult decisions. Organisations reestablish their business models for various reasons. Some businesses do it for financial reasons, and some do it for operational reasons. In the UAE, corporate restructuring has become a growing trend, particularly since 2023.
The restructuring wave came into the spotlight after the UAE government announced the corporate tax rule. Before 2023, there was no corporate tax in the UAE; however, due to the prevailing demand, the government announced a 9% corporate tax on organisations earning more than 375,000 AED annually.
The new tax rule made headlines in the UAE business world. Many businesses faced big changes in their organisation. Many entrepreneurs supported the new rule, while others opposed it. Even after the corporate tax announcement, the UAE remains positioned as a leader in the international business world. In this blog, we will closely discuss the corporate restructuring and how the new UAE tax rules are impacting businesses.
What is Corporate Restructuring?
Business restructuring involves numerous strategic modifications, such as changes to the company's operations, structure, or finances, to enhance business growth, adapt to market changes, or tackle challenges. Every business undergoes a restructuring process at least once.
Technically, it is the reviving step for a company facing losses. In the competitive business landscape, these steps are essential for staying ahead and achieving sustainable growth.
Companies may take the restructuring decision for various reasons that include;
Tackle Financial Challenges: Companies often take this step to address problems like a drop in income, stagnant growth or debt concerns.
Revamp Marketing Strategy: Businesses can also take this step to adapt to changes in consumer behaviour and technological advancements.
Expand Scope: Most of the time, organisations undertake restructuring to realign their business framework and strategically expand growth.
Important Things to Consider in the Restructuring in the UAE:
Commercial Companies Law in the UAE:
On the mainland, this law governs scenarios involving the restructuring of organisations, including mergers, acquisitions, and conversions of companies.
Relief from Business Restructuring:
Certain restructuring transactions are granted relief under the UAE Corporate Tax Law, ensuring they are treated as tax-neutral in specific situations.
FTA or Federal Tax Authority:
The FTA dispenses advice on tax consequences and recognises restructuring for justifiable commercial purposes.
Expert Guidance:
Since company restructuring in the UAE is a complex process, it is advisable to seek legal and financial support.
Advantages and Disadvantages of Restructuring Under the New Tax Rule
Advantages
- Tax impartiality can be applied to legitimate business reorganisations.
- Tax groups can be formed, and thus losses may be shared.
- Participation exemption facilitates tax-efficient exit strategies, among others.
- Emphasises formalising group structures, which leads to enhanced corporate governance.
Disadvantages
- Reliefs are conditional and require an elaborate filing process.
- The two-year clawback period limits the scope of possibilities.
- Most advantages may not be extended to QFZPs.
- On top of them all are increased compliance and administrative obligations, especially for SMEs.
Restructure Your Business Seamlessly
The execution of corporate tax in the UAE is affecting businesses' operations and growth, extending further than being a mere revenue-raising measure. Since the new taxation system came into effect, informal transfers and changes no longer involve mergers, demergers, or restructurings.
In today's world, corporate planning primarily focuses on taxes, accurate documentation, and adherence to legal compliance. A company should, hence, begin by studying group structures, performing tax effect assessments, and calibrating accounting procedures to suit these findings. Reliefs and exemptions can help ensure long-term tax efficiency, and it may be best to work with experienced professionals.
Businesses that understand the new tax transformations and take full advantage of extant reliefs and concessions may continue to restructure successfully while retaining the defining benefits of the UAE: flexibility, competitiveness, and commercial growth.
Here, Markai Corporate Services plays on your behalf. Dealing with your complexity to assist in reshaping your business, that's all in our bucket. Contact us today to unlock the full potential of a company restructure and the UAE legal landscape.
