The introduction of corporate tax in the UAE has brought a profound shift in how businesses—both small and large—approach corporate restructuring. Historically known as a tax-free haven, the UAE’s new corporate tax regime, introduced for financial years beginning on or after 1 June 2023, imposes a 9% tax on taxable income exceeding AED 375,000 (USD 102,110). While the rate remains internationally competitive, the structural and compliance implications are significant.
Companies can no longer treat mergers, demergers, share transfers, or asset realignments as purely administrative processes. Restructuring now requires strategic planning, careful timing, and documentation. Here’s how UAE corporate tax is reshaping restructuring decisions, the key tax reliefs available, and the practical implications for businesses seeking to remain agile, efficient, and compliant.
From Zero Tax to Strategic Structuring
The previous landscape
Prior to the introduction of corporate tax, internal restructurings—such as asset transfers, spin-offs, or mergers—were exempt from tax liability. Businesses could move operations between entities, consolidate ownership, or sell divisions without generating a tax bill.
What’s changed?
Now, most restructuring activities can trigger tax unless they qualify for relief under specific provisions. Transfers of assets or entire businesses between entities may lead to taxable gains. Capital gains on asset appreciation or goodwill created during a restructuring are no longer exempt by default.
Result: restructuring is no longer routine
These changes have made tax efficiency a central concern. Businesses must now weigh the financial implications of corporate tax when making operational or ownership changes. The result is a significant shift from reactive restructuring to forward-thinking strategic planning, empowering businesses to anticipate and manage their tax liabilities.
Reliefs That Enable Tax-Neutral Restructuring
Business restructuring relief
The UAE’s Corporate Tax Law (Article 27) offers a business restructuring relief that allows qualifying transactions to occur without triggering tax. To qualify:
- The transfer must involve all or a part of a business that is independent.
- Consideration should be in shares (not cash or non-share assets).
- Both entities must be UAE-resident and taxable (not exempt or a Qualifying Free Zone Person).
- Both must use the same accounting standards and financial year.
- The transaction must serve a valid commercial purpose and not be motivated by tax considerations.
If these conditions are met, the restructuring can be carried out at net book value, avoiding immediate tax on any gain.
Example application
For instance, if a retail group wants to consolidate its operations, it can merge multiple subsidiaries under a single entity by transferring their businesses in exchange for shares. Provided the transaction meets all Article 27 criteria, no tax would be due at the time of the restructuring.
Clawback period
It’s important to note that if the shares or transferred assets are sold within two years, the deferred tax relief is revoked. This anti-abuse provision prevents businesses from disguising taxable sales as internal restructures.
Group relief for asset transfers
Under Article 26, intra-group asset transfers may also qualify for tax-neutral treatment if:
- Both companies are UAE-resident.
- Both are part of a “qualifying group” with 75% or more common ownership.
- The transferred asset is a capital asset (not inventory).
Again, the relief is clawed back if the asset or entity exits the group within two years.
Example application
Consider a real estate group with multiple subsidiaries. If one subsidiary transfers property to another within the group and both meet the 75% ownership condition, they may elect to apply group relief and defer tax on any unrealised gain.
How Mergers and Acquisitions Are Affected
Share vs asset deals
In the post-tax era, the structure of M&A deals matters. Share sales may be exempt from tax if the participation exemption applies. To qualify:
- The seller must maintain at least a 5% ownership stake in the target company.
- The shares must have been held for at least 12 months.
- The subsidiary should not be exempt or subject to 0% tax under a preferential regime unless other conditions are met.
This exemption provides an incentive to structure deals as share sales, thereby facilitating transactions. Asset sales, however, typically trigger tax on any capital gain.
Valuations and documentation
Proper valuations, board resolutions, and legally sound agreements are now essential. Transfer pricing rules apply to related-party transactions, requiring arm’s-length pricing or justified tax-neutral elections. If a company opts for a tax relief, it must document the election and maintain records to justify the transaction.
New M&A considerations
Buyers now conduct more extensive due diligence on tax risks, deferred tax assets, and prior restructurings. Sellers are also structuring deals to qualify for relief or minimise exposure to the 9% tax. Many are opting for pre-sale restructurings to meet exemption requirements.
Spin-Offs and Demergers: The New Approach
Independent business units
For a demerger to qualify for tax-neutral treatment, the business segment being spun off must be an independent operation—i.e., capable of operating independently. This includes having separate assets, operations, management, and customer relationships.
Execution structure
Typically, the parent company transfers assets into a newly formed subsidiary in exchange for shares. This allows the parent to maintain ownership while preparing the entity for potential investment or divestment.
Example application
A manufacturing company spinning off its logistics division into a separate entity would need to ensure the logistics arm is independently viable and the transfer meets the Article 27 conditions. If structured correctly, the spin-off can proceed without incurring corporate tax.
Strategic timing
Businesses must now ensure alignment on financial years, accounting standards, and business purpose. Failure to do so can disqualify the relief and result in immediate tax costs.
Intra-Group Transfers and Holding Company Structures
Qualifying group relief
Many groups are reorganising under a single holding company to meet the 75% or 95% thresholds required for group relief or tax grouping.
Tax group formation
Where ownership exceeds 95%, entities can form a tax group and file a single consolidated tax return. This reduces the compliance burden and allows profits and losses to be pooled across the group.
Example application
A tech startup with multiple subsidiaries consolidated them under a 100% UAE holding company, formed a tax group, and offset losses from one entity against profits from another—saving over AED 100,000 (USD 27,230) in annual tax.
Benefits of holding structures
Holding companies also benefit from participation exemption rules, allowing tax-free dividends and capital gains if the conditions are met. This makes them attractive vehicles for both investment and restructuring.
Challenges
Entities with Qualifying Free Zone status (0% tax) are excluded from group relief and cannot join tax groups. Mixed structures involving mainland and free zone companies require special attention to avoid unexpected tax liabilities.
Transfer Pricing and Compliance Considerations
Arm’s-length pricing
All related-party transactions must be priced at arm’s length unless a tax relief applies. This means even internal reorganisations must be supported by valuations and comparable benchmarks.
Transfer pricing documentation
Larger businesses—those with revenues above AED 200 million (USD 54,460,00)—must prepare and maintain Master Files and Local Files in accordance with OECD guidelines. All businesses exceeding specified thresholds must file a transfer pricing disclosure form with their tax return.
SME considerations
Even small and medium-sized enterprises must keep clear records of restructurings. Transactions that seem minor now could attract scrutiny once the business exceeds the AED 375,000 (USD 102,110) taxable threshold. Documentation of commercial purposes, valuations, and legal agreements is essential.
Benefits and Drawbacks of Restructuring Under the New Tax Regime
Advantages
- Access to tax-neutral treatment for legitimate business reorganisations.
- Potential for tax group formation and intra-group loss sharing.
- Participation exemption enables tax-efficient exit strategies.
- Encourages formalisation of group structures, improving corporate governance.
Limitations
- Reliefs are conditional and require detailed documentation.
- A two-year clawback period limits flexibility.
- QFZPs are excluded from many benefits.
- Greater administrative and compliance burden, especially for SMEs.
Restructure Your Business Efficiently
The introduction of corporate tax in the UAE is more than a revenue-raising initiative—it is reshaping how businesses operate and grow. For companies considering mergers, demergers, or restructuring, the days of informal transfers and simple reorganisations are over.
Tax strategy, documentation, and regulatory compliance now sit at the heart of corporate planning. Businesses should begin by conducting a tax impact assessment, reviewing group structures, and aligning accounting policies as needed. Engaging with experienced professionals can help ensure eligibility for relief and long-term tax efficiency.
By understanding the new tax landscape and utilising available reliefs and exemptions, businesses can continue to restructure efficiently and maintain the UAE’s hallmark advantages: flexibility, competitiveness, and commercial growth.
For expert support on corporate tax planning and restructuring, get in touch with the team at Virtuzone. We help businesses navigate every aspect of the UAE’s tax and legal landscape.
