Business Restructuring Relief in the UAE: A Corporate Tax Guide for Groups and Deals

Mergers, demergers, holding company set-ups and transfers of a business into a new company are common in the UAE. Without relief, moving a business or its assets can trigger corporate tax on the gain. Business restructuring relief in the UAE and its sister relief for group transfers can make these moves tax-neutral, if you meet the conditions. This guide explains both reliefs, the traps and how to plan a restructuring safely.

Why restructurings can create a tax bill

Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), transferring assets or a business usually counts as a disposal. If the value is higher than the book value, the gain can be taxable at 9%. Transactions between related parties must also follow the arm's length principle. Two reliefs change this.

The two reliefs at a glance

The FTA released detailed guides on both reliefs in May 2024.

Business Restructuring Relief in detail

What qualifies

Business Restructuring Relief covers the transfer of a whole business, or an independent part of a business, in exchange for shares or other ownership interests. Typical cases include:

• a sole establishment or partnership moving its business into a new company;
• a merger of two companies;
• a demerger that splits one business into separate companies;
• moving a division into a new subsidiary before a sale or investment.

The cash limit

Consideration must generally be in shares. Cash is allowed only up to the lower of the net book value of what is transferred or 10% of the nominal value of the shares issued. Pay more cash than this and the relief is lost.

Valid commercial reasons

The restructuring must be carried out for valid commercial or non-fiscal reasons, such as simplifying the group, preparing for investment or separating risks. A restructuring whose main purpose is to avoid tax will not qualify.

Qualifying Group Relief in detail

Qualifying Group Relief applies to transfers of capital assets and liabilities between companies in the same Qualifying Group. A group qualifies where one company owns at least 75% of the other, or a common parent owns at least 75% of both. Both companies must be UAE resident, neither can be an exempt person or a Qualifying Free Zone Person, and both must have the same financial year and use the same accounting standards.

The transferor makes the election, and it cannot be revoked without FTA approval. If the asset or either company leaves the group within two years, the relief is clawed back.

Where market value still matters

Both reliefs transfer assets at net book value, so no gain arises. But market value still matters:

• It tests the Business Restructuring Relief cash limit.
• If you don't meet the conditions, the transfer is taxed at market value under the arm's length rules.
• Payments to connected persons, such as owners and directors, are only deductible up to market value.
• Lenders, investors and auditors usually want an independent valuation of what is transferred.

Commission a valuation early, so the numbers support both the deal and the tax position.

Common traps

• Too much cash: paying cash above the limit, often through a later "settlement" of balances.
• Selling too soon: disposing of shares or assets within two years and triggering a clawback.
• Free zone status: forgetting that Qualifying Free Zone Persons are excluded from Qualifying Group Relief.
• No election or paperwork: failing to make the election correctly in the tax return or keep board minutes showing the commercial reasons.
• VAT and other costs: overlooking VAT, transfer fees and licensing steps, which follow their own rules.

A practical restructuring roadmap

1. Define the goal: investment, sale, succession, simplification or risk separation.
2. Map the structure: current and target ownership, tax residence and free zone status of each entity.
3. Test the conditions: ownership, consideration, accounting periods and commercial reasons.
4. Value the business: independent valuation to support pricing and the cash limit.
5. Plan the steps: licensing, contracts, employees, VAT and bank accounts.
6. Document and elect: board minutes, agreements and the relief election in the corporate tax return.
7. Monitor for two years: track any change that could trigger a clawback.

How GULF CONSULT can help

GULF CONSULT's growth advisory and corporate tax teams work together on restructurings, mergers and acquisitions. We model tax outcomes, prepare independent valuations, handle licensing and PRO steps, and document the relief claim so it stands up to FTA review.

Related services: Valuation & growth advisory, Corporate tax advisory, Business setup.

Book your free consultation

Planning a merger, demerger or group clean-up? Book GULF CONSULT's free 30-minute consultation to check the tax position before you sign. Email [email protected], call +971 58 600 4833 or message us on WhatsApp.