Merging group companies. Spinning off a division. Moving assets into a new entity. Restructuring can unlock growth, simplify your group and prepare you for investment — but in the UAE, every move now carries Corporate Tax, VAT, Transfer Pricing and compliance consequences.

The good news? With the right planning, many restructurings can happen with no immediate Corporate Tax cost. Here is what every business owner and finance team should know before signing on the dotted line.

AT A GLANCE

■      Business Restructuring Relief (Article 27) can defer Corporate Tax on qualifying transfers — but you must elect for it.

■      VAT is a separate test. Corporate Tax relief does not decide your VAT position.

■      Tax losses can travel with the business, if the conditions are met.

■      Related-party deals need arm’s-length pricing and solid documentation.

■      The relief can be clawed back if certain events happen later — plan ahead.

01  What is business restructuring?

Put simply, it is reorganising how your company is set up — its operations, legal structure, ownership, assets or liabilities — to achieve a commercial goal.

Typical examples include:

■      Mergers within a group

■      Transferring an entire business, or an independent division

■      Demergers and spin-offs

■      Changing the legal form of an entity

■      Moving assets and liabilities between companies

■      Wider group reorganisations

How it is taxed depends on three things: how the deal is structured, which entities are involved, and whether the relief conditions are met.

02  Corporate Tax: Business Restructuring Relief

Article 27 of the UAE Corporate Tax Law offers relief for qualifying restructurings. In plain terms, it lets you reorganise without paying Corporate Tax straight away on the gains or losses that would otherwise arise.

The Federal Tax Authority’s Business Restructuring Relief Guide (issued 17 April 2024) sets out the scope, conditions, consequences and compliance requirements in detail.

WATCH OUT

The relief is not automatic. Being a related party does not, on its own, make you eligible — and qualifying third-party deals can be covered too. Always test the exact transaction against every condition before you elect.

03  Moving businesses, assets and tax losses

Before you transfer anything, ask four key questions:

✓    Is it a business or just assets? Are you moving a business or independent division — or only individual assets?

✓    What are the numbers? Review carrying values, gains and losses, and the effect on future taxable income.

✓    What if relief does not apply? If it is unavailable or not elected, the Corporate Tax result may be very different.

✓    Can the tax losses come too? Qualifying unused losses of the transferor can pass to the transferee — provided conditions are met, including continuing the same or a similar business activity.

04  VAT: a separate test

Securing Corporate Tax relief does not settle your VAT position. A business transfer may qualify as a Transfer of a Business as a Going Concern (TOGC) — but only if the VAT requirements are met in their own right.

Make sure you review:

■      Whether the transferred business or part can operate independently

■      The VAT status of both parties

■      How individual assets and liabilities are treated

■      Any VAT registration or deregistration consequences

■      Supporting documents — agreements, asset schedules and operational arrangements should all back up the VAT treatment you intend

05  Transfer Pricing and related parties

A group restructuring often shifts who does what — the functions performed, the assets used and the risks taken on by each entity.

Where UAE Transfer Pricing rules apply, each transaction should meet the arm’s-length principle, backed by documentation that explains the commercial reasons and the pricing method. This can include:

■      Business and asset transfers

■      Movement of employees and activities

■      Intercompany services

■      Financing and cross-charging arrangements

06  Accounting and financial reporting

Get the accounting right before you post a single entry. Under the applicable framework (including IFRS where relevant), focus on:

■      Recognising and measuring the assets and liabilities transferred

■      Business-combination accounting, where it applies

■      Related-party disclosures

■      Changes to how the financial statements are presented

■      Current and deferred tax effects

■      Consistent accounting policies and well-kept supporting records

07  Regulatory and corporate compliance

Tax is only half the story. Your restructuring checklist should also cover:

Exact requirements vary by mainland or free-zone jurisdiction, licensing authority and deal structure.

08  The hidden trap: relief clawback

Business Restructuring Relief can be withdrawn if certain events happen after the transaction — for example, specific changes in ownership or further restructuring within the relevant period.

So don’t just look at today’s deal. Think about what is coming next: planned sales, new investors or future group reorganisations could all put the relief at risk.

THE BOTTOM LINE

Plan first, restructure second.

A well-planned restructuring can save significant tax and avoid costly surprises. Bring your tax advisers in early, test every condition, and keep your documentation airtight from day one.

This article is for general information only and is not tax advice. Each restructuring should be assessed on its own facts.