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Business restructuring relief

Applies
FY2024 onwards
Reviewed
Rule
UAE-CT-BRR-2024.1
By

When is a UAE business restructuring free of Corporate Tax?

A business moved for shares passes at net book value with no gain if all seven conditions hold, but the relief is withdrawn on a sale within 2 years.

Per Federal Decree-Law No. 47 of 2022, Article 27, Business Restructuring Relief

No gain or loss need be taken into account where a Taxable Person transfers its entire Business, or an independent part of it, to another Taxable Person in exchange for shares or other ownership interests in the transferee; or where one or more Taxable Persons transfer their entire Business in exchange for such interests and cease to exist as a result. All seven conditions of Article 27(2) must be met, including that the transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality. The assets and liabilities move at net book value, the interests received are capped, and unutilised Tax Losses of the transferor may become carried-forward losses of the transferee subject to conditions the Minister prescribes. The relief is withdrawn if, within a published period, shares in either Person are disposed of outside the Qualifying Group or the Business is transferred or disposed of again.

Head (c) of Article 20(2), for a Business rather than an asset. Where it applies, the restructuring is tax-neutral and the losses may follow the Business — which is usually what drives the structure. Where the clawback bites, the original transfer is retrospectively at Market Value.

The two forms, the seven conditions, and what follows

27(1) — the two circumstances

  • (a) A Taxable Person transfers its entire Business, or an independent part of it, to a Person who is or becomes a Taxable Person as a result, in exchange for shares or other ownership interests in the transferee
  • (b) One or more Taxable Persons transfer their entire Business on the same footing and cease to exist as a result of the transfer

27(2) — every one of these must be met

  • (a) The transfer is undertaken in accordance with, and meets all conditions imposed by, the applicable legislation of the State
  • (b) The Taxable Persons are Resident Persons, or Non-Resident Persons with a Permanent Establishment in the State
  • (c) None of the Persons is an Exempt Person
  • (d) None of the Persons is a Qualifying Free Zone Person
  • (e) The Financial Year of each Person ends on the same date
  • (f) The Taxable Persons prepare their financial statements using the same accounting standards
  • (g) The transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality

Condition (g) is a judgement, not a fact

It is the same language as limb (a) of the general anti-abuse rule. The rule carries it as the reader's determination and says so, rather than presenting it as something tested.

27(3) — what applying the relief does

  • (a) The assets and liabilities transferred are treated as transferred at net book value, so neither a gain nor a loss arises
  • (b) On a 27(1)(a) transfer, the value of the interests received shall not exceed the net book value of the assets transferred and liabilities assumed, less any other consideration received
  • (c) On a 27(1)(b) transfer, it shall not exceed the book value of the interests surrendered, less any other consideration received
  • (d) Unutilised Tax Losses of the transferor incurred before the Tax Period of completion may become carried-forward Tax Losses of the transferee, subject to conditions the Minister prescribes

The two caps are different measures

Clause 3(b) measures against what was transferred; Clause 3(c) against what was surrendered. They are not two phrasings of one test, and the rule keeps them apart.

27(5) — losses on a transfer of part

Where an independent part of a Business is transferred, Clause 3(d) applies only to those unutilised Tax Losses that can be reasonably attributed to that part.

27(6)–(7) — a wider clawback than Article 26's

  • (a) Shares or other ownership interests in the transferor OR the transferee being sold, transferred or otherwise disposed of, in whole or part, to a Person outside the Qualifying Group
  • (b) A subsequent transfer or disposal of the Business or the independent part transferred
  • Where either occurs within the published period, the transfer is treated as having taken place at Market Value at its date

Ministerial Decision No. 133 of 2023

  • Article 4: the relief applies only if the transferor elects for it
  • Article 2: consideration other than shares may not exceed the lower of the net book value transferred and 10% of the nominal value of the shares or interests issued
  • Article 5: the transferor's losses follow the Business only if the transferee continues the same or a similar Business, judged on the same three factors as Article 39(2)
  • Article 6: under Article 27(4)(a) and (b), the Person receiving the shares must hold at least 50% of the transferor, and the Person issuing them at least 50% of the transferee; Article 7 relieves an Unincorporated Partnership treated as a Taxable Person whether or not its partners receive shares
  • Article 8: on a clawback the gain or loss is the transferor's, in the Tax Period of the event — the transferee's where the transferor has ceased to be a Taxable Person or is a natural person — and the transferee reverses its book-value adjustments

Order of testing

  1. 1

    Inputs requiring your determination

    Any input a person must decide and has not decided stops the computation. The book value of interests surrendered is asked for only on the form of transfer whose cap is measured against it, and the Market Value only where a withdrawing event has occurred.

  2. 2

    Each condition of Article 27(2), in the article's order

    The first condition not met is reported and no further condition is tested. All seven are required.

  3. 3

    Withdrawal of the relief within the published period

    Article 27(6). Where shares in either Person leave the Qualifying Group or the Business moves again within the period, Article 27(7) puts the original transfer at Market Value.

  4. 4

    Every condition of Article 27(2)

    Where all seven are met and no withdrawing event has occurred, no gain or loss is taken into account, the cap on the interests received is computed on the footing the form of transfer requires, and any losses that may follow the Business are reported.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

An independent part transferred for shares

A group company transfers a division with a net book value of assets less liabilities of AED 18,000,000 to a new subsidiary in exchange for shares, taking AED 2,000,000 of cash as well. It has AED 5,000,000 of unutilised Tax Losses, of which it determines AED 1,800,000 is reasonably attributable to the division.

Computed

Every condition of Article 27(2) is met as computed, so no gain or loss need be taken into account on the transfer if the transferor elects for the relief, as Ministerial Decision No. 133 of 2023 Article 4 requires: Article 27(3)(a) treats the assets and liabilities as transferred at their net book value of AED 18,000,000, and Article 27(3)(b) caps the value of the shares or ownership interests received at AED 16,000,000. Article 27(3)(d) may let the transferor's unutilised Tax Losses of AED 5,000,000 become carried-forward losses of the transferee, on the condition in Ministerial Decision No. 133 of 2023 Article 5 that the transferee continues the same or a similar Business — judged by its use of the same assets, no significant change to the core identity or operations, and changes arising from what existed before — which is your determination. On a transfer of an independent part, Article 27(5) restricts that to the AED 1,800,000 you have determined is reasonably attributable to the part transferred. The relief remains provisional — Article 27(6) withdraws it if, within 2 years of the transfer, shares in the transferor or transferee are disposed of outside the Qualifying Group or the Business is transferred or disposed of again, in which case Article 27(7) treats the transfer as having been at Market Value. Based on the figures you supplied. That the transfer is for valid commercial or other non-fiscal reasons reflecting economic reality is your determination.

Workings

Net book value transferredArticle 27(3)(a) — neither a gain nor a loss arises
AED 18,000,000
Net book value of assets transferred less liabilities assumedArticle 27(3)(b) — the basis of the cap
AED 18,000,000
Other consideration receivedArticle 27(3)(b) — deducted from the cap
(AED 2,000,000)
Ceiling on the value of shares or interests receivedArticle 27(3)(b)
AED 16,000,000
Gain or loss to be taken into accountArticle 27(1) — none, the transfer being at net book value
AED 0
Transferor's unutilised Tax LossesArticle 27(3)(d) — incurred before the Tax Period in which the transfer completes
AED 5,000,000
Of which reasonably attributable to the part transferredArticle 27(5) — your determination, on a transfer of an independent part
AED 1,800,000

Decided by the every condition of article 27(2)

A merger, the transferor ceasing to exist

Two companies merge: the transferor moves its entire Business for shares and ceases to exist. The interests surrendered had a book value of AED 9,500,000, and the assets less liabilities a net book value of AED 11,000,000. The cap is measured on the interests surrendered.

Computed

Every condition of Article 27(2) is met as computed, so no gain or loss need be taken into account on the transfer if the transferor elects for the relief, as Ministerial Decision No. 133 of 2023 Article 4 requires: Article 27(3)(a) treats the assets and liabilities as transferred at their net book value of AED 11,000,000, and Article 27(3)(c) caps the value of the shares or ownership interests received at AED 9,500,000. Article 27(3)(d) may let the transferor's unutilised Tax Losses become carried-forward losses of the transferee, where the transferee continues the same or a similar Business (Ministerial Decision No. 133 of 2023, Article 5); none were supplied here. The relief remains provisional — Article 27(6) withdraws it if, within 2 years of the transfer, shares in the transferor or transferee are disposed of outside the Qualifying Group or the Business is transferred or disposed of again, in which case Article 27(7) treats the transfer as having been at Market Value. Based on the figures you supplied. That the transfer is for valid commercial or other non-fiscal reasons reflecting economic reality is your determination.

Workings

Net book value transferredArticle 27(3)(a) — neither a gain nor a loss arises
AED 11,000,000
Book value of the interests surrenderedArticle 27(3)(c) — the basis of the cap
AED 9,500,000
Other consideration receivednone supplied
AED 0
Ceiling on the value of shares or interests receivedArticle 27(3)(c)
AED 9,500,000
Gain or loss to be taken into accountArticle 27(1) — none, the transfer being at net book value
AED 0

Decided by the every condition of article 27(2)

The transferee sold on within the period

The division transferred above, whose shares are sold outside the group a year later. Its Market Value at the transfer date was AED 25,000,000.

Computed

The relief does not apply as computed: Article 27(6)(a) — shares or other ownership interests in the transferor or the transferee were sold, transferred or otherwise disposed of, in whole or part, to a Person outside the Qualifying Group, within the published period of 2 years from the date of transfer. Article 27(7) treats the transfer of the Business as having taken place at Market Value of AED 25,000,000 at its date, against a net book value of AED 18,000,000 — a difference of AED 7,000,000, based on the figures you supplied. Ministerial Decision No. 133 of 2023 Article 8 places that gain or loss in the TRANSFEROR's Taxable Income for the Tax Period in which the event occurs — not the period of the transfer — or in the transferee's where the transferor has ceased to be a Taxable Person or is a natural person; and the transferee reverses any depreciation or other adjustment it made on the book-value basis.

Workings

Net book value transferredArticle 27(3)(a) — as supplied
AED 18,000,000
Market Value at the date of transferArticle 27(7) — as supplied
AED 25,000,000
Gain or loss to be taken into accountArticle 27(7)
AED 7,000,000

Decided by the withdrawal of the relief within the published period

A restructuring without a commercial rationale

The same transfer, where the person cannot say it was undertaken for valid commercial or other non-fiscal reasons reflecting economic reality.

Computed

The relief is not available as computed: Article 27(2)(g) requires that the transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality, and that condition is not met on the facts you supplied. Article 27(2) requires all seven of its conditions, so no further condition is reported. Whether the reasons for a transfer are valid commercial or other non-fiscal reasons reflecting economic reality is your determination, not a test this rule applies.

Decided by the condition 27(2)(g)

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

10 inputs still need your determination:

  • Is the transfer of the entire Business or an independent part of it in exchange for shares in the transferee, or of the entire Business with the transferor ceasing to exist as a result?
  • The transfer is undertaken in accordance with, and meets all conditions imposed by, the applicable legislation of the State?
  • The Taxable Persons are Resident Persons, or Non-Resident Persons with a Permanent Establishment in the State?
  • None of the Persons is an Exempt Person?
  • None of the Persons is a Qualifying Free Zone Person?
  • The Financial Year of each Person ends on the same date?
  • The Taxable Persons prepare their financial statements using the same accounting standards?
  • The transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality?
  • What is the net book value of the assets transferred, less the liabilities assumed, at the time of transfer?
  • Within the published period from the date of transfer, have shares in the transferor or transferee been disposed of outside the Qualifying Group, or has the Business been transferred or disposed of again?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Thresholds

uae.business_restructuring_clawback_years
count 2 · reviewed 2026-09-28 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader