UAE Corporate Tax: Business Restructuring Relief Explained

In an era of rapid change, businesses seeking expansion must often engage in bold moves — mergers, acquisitions, or business spin-offs. But these moves can come with hefty tax consequences. Fortunately, the UAE’s Corporate Tax Law offers a powerful solution: Business Restructuring Relief.

If you’re an entrepreneur planning a merger, demerger, or any corporate reorganization, this article is essential reading. You’ll discover how to legally avoid triggering taxable gains or losses during restructuring — and how to ensure full compliance to benefit from this important relief.

Let’s dive into everything you need to know about Business Restructuring Relief and how it can help you optimize your restructuring strategy.

Business Restructuring Relief is a provision under the UAE Corporate Tax Law designed to eliminate the tax impact of certain restructuring or reorganization transactions — such as mergers, demergers, and asset transfers — when they are carried out for legitimate commercial reasons.

Without this relief, such transactions could result in taxable gains or losses, making corporate restructuring costly. The Federal Tax Authority (FTA) recognizes that these transactions are often necessary for strategic growth or operational efficiency. Thus, it allows qualifying transactions to be treated as tax-neutral, meaning:

Neither the transferring nor the receiving party is required to account for any taxable gains or losses in their Corporate Tax calculation.

Business Restructuring Relief applies to two specific types of transactions:

1. Transfer of a Business or Independent Part when a Taxable Person transfers all or part of their business to another Taxable Person.
2. Transfer with Termination of Transferor when one or more Taxable Persons transfer their entire business to another Taxable Person, and the Transferor ceases to exist afterward.

These categories cover a broad range of scenarios, including asset spin-offs, acquisitions, and group reorganizations.

To benefit from Business Restructuring Relief, the transaction must meet the following conditions:

• The transfer must comply with UAE legislation;
• Both Transferor and Transferee must be either Resident Persons or Non-Resident Persons with a Permanent Establishment in the UAE;
• Neither party can be an Exempt Person;
• Neither party can be a Qualifying Free Zone Person;
• The financial year of both parties must end on the same date;
• Both parties must prepare their financial statements using the same accounting standards;
• The transfer must be driven by valid commercial or non-fiscal reasons that reflect economic reality.

Important Note:
There are no ownership conditions for the Transferor or Transferee. This means the relief is available whether the transaction occurs between related parties or third parties.

1. Transfer at Net Book Value
   Assets and liabilities are transferred at their net book value as of the date of transfer. No gain or loss is recognized, ensuring a tax-neutral transaction for the Transferor.
2. Valuation of Ownership Interests
   When ownership interests (e.g., shares) are received by the Transferor or their shareholders (owning at least 50% directly or indirectly), these are treated for Corporate Tax purposes as not exceeding the net book value of transferred assets and assumed liabilities (less any additional consideration).
3. Carry Forward of Tax Losses
   Any unutilized tax losses incurred by the Transferor in prior tax periods may be transferred to the Transferee, provided the Transferee continues the same or similar business activities as the Transferor.

To benefit from Business Restructuring Relief, businesses must meet strict compliance obligations:

1. Election by Transferor
   The Transferor must elect to apply the Business Restructuring Relief for each eligible transaction. This election is not automatic and does not carry forward to future restructuring transactions.
2. Record Keeping
   Both parties must retain:
   • A record of the transfer agreement;
   • Documentation evidencing the criteria for tax neutrality;
   • Any required adjustments as per the relevant Ministerial Decision on determining taxable income.

1. Deferred Gain or Loss Recognition
   If a previously deferred gain or loss becomes realized (e.g., on a future sale), it must be recognized by the Transferee for
2. Corporate Tax purposes.
   Exclude Depreciation/Amortization
   The Transferee must exclude any depreciation, amortization, or value adjustments related to gains/losses incurred by the Transferor that were excluded due to the initial relief.

Relief may be reversed or “recaptured” if:

• There is a sale or transfer of ownership in the Transferor or Transferee (in whole or in part) to a person outside the Qualifying Group
• The transferred business or independent part is subsequently disposed of

These events would result in a retroactive taxation of the original transaction.

Business Restructuring Relief is a powerful tool for entrepreneurs and corporations navigating mergers, acquisitions, or reorganizations—offering tax neutrality and smoother transitions. But unlocking its full benefits requires precise compliance and expert guidance.

At My Business Consulting DMCC, we specialize in:

• Corporate Tax compliance
• VAT advisory
• Tailored and cost-effective accounting, bookkeeping, and taxation packages
  Whether you need a standard compliance solution or a fully customized plan, our experienced Tax Advisory team is here to support your success.

Contact us today to confidently restructure your business and optimize your tax position.