In certain circumstances, where an entire Business or an independent part of a Business is transferred in exchange for shares or other ownership interests, business restructuring relief may apply to eliminate the Corporate Tax impact of these transactions. Under this relief, no gains or losses need to be taken into account when calculating the Taxable Income for either party.273

In order for this relief to apply, all of the following conditions need to be met:

• The transfer is undertaken in accordance with, and meets all the conditions imposed by, the applicable legislation of the UAE;274
• The Taxable Persons are Resident Persons, or Non-Resident Persons that have a Permanent Establishment in the UAE;275

273 Article 27(1) of the Corporate Tax Law. 274 Article 27(2)(a) of the Corporate Tax Law. 275 Article 27(2)(b) of the Corporate Tax Law.

• None of the Persons are an Exempt Person;276
• None of the Persons are a Qualifying Free Zone Person;277
• The Financial Year of each of the Taxable Persons ends on the same date;278
• The Taxable Persons prepare their Financial Statements using the same accounting standards;279 and
• The transfer is undertaken for valid commercial reasons which reflect economic reality.280

An individual can use this relief in order to transfer their Business to an incorporated entity as long as the relevant conditions are satisfied.

Where business restructuring relief applies, the assets and liabilities transferred will be treated as being transferred at their net book value at the time of transfer so that neither a gain nor a loss arises.281

This is an optional relief, and the Person that transferred the Business (‘the transferor’) can choose whether to elect for the relief to apply on a case-by-case basis.282 Both the transferor and transferee need to maintain a record of the agreement to transfer the Business at net book value.283

The relief is available where a Business is transferred in exchange for ownership interests and other forms of consideration (such as cash). Where other forms of considerations are part of the overall consideration for the Business transfer, the Market Value of any other form of consideration cannot exceed the net book value of the assets and liabilities transferred, or 10% of the nominal value of the ownership interests issued.284

When calculating their Taxable Income, the transferee will exclude any depreciation, amortisation or other change in the value of the transferred assets and liabilities to the extent that the change in value relates to the gain or loss that arose to the transferor

that has not been subject to Corporate Tax due to the application of business restructuring relief.285

Upon realisation, the transferee will need to include any gain or loss that has not previously been recognised for Corporate Tax purposes in respect of the assets and liabilities since the most recent acquisition to which business restructuring relief did not apply.286

Tax Losses transferred as part of a business restructuring may only become carried forward Tax Losses available for the transferee if the transferee continues to conduct a similar Business or Business Activity following the transfer.287 This will usually mean that:

• the transferee uses some or all of the same assets that were used by the transferor prior to the transfer;
• the transferee has not made significant changes to the core identity or operations of the Business since the transfer; and
• any changes that have been made have resulted from the development or use of assets, services, processes, products or methods that existed before the transfer.
• This relief will not apply if, within two years of the initial transfer:
o The shares or other ownership interests in either the transferor or the transferee are sold, transferred or otherwise disposed of, in whole or part, to a Person that is not a member of the Qualifying Group (as defined in Section 7.3) to which the transferor or the transferee belong;288 or
o There is a subsequent transfer or disposal of the Business or independent part of the Business which was transferred.289

In either of these scenarios, the transferor shall treat the transfer as having taken place at Market Value at the date of the transfer, and shall account for any gain or loss that arises as a result in the Tax Return for the Tax Period in which the subsequent transfer occurred.290 If the transferor is no longer a Taxable Person (for example, they have ceased to exist or cease to have a Permanent Establishment in the UAE), or if they are an individual, the transferee would be responsible for meeting any Corporate Tax obligation on the deferred gain or loss.

Business restructuring relief

F LLC is a UAE resident company that sells agricultural machinery. Z LLC is a UAE resident company that operates an agricultural machinery repair business.

During the Tax Period, Z LLC bought F LLC’s business in return for 20% of the shares in Z LLC. The net book value of F LLC’s business at the time of transfer was AED 2,300,000. The Market Value of the shares received by F LLC was AED 2,700,000, which equals the Market Value of the business. Z LLC measures assets at fair value and, therefore, recognised the assets and liabilities of the business at a net book value of AED 2,700,000 for accounting purposes.

For Corporate Tax purposes, the business will be treated as having been transferred to Z LLC at its net book value, AED 2,300,000. This means that when calculating their Taxable Income, F LLC will be treated as having received AED 2,300,000 and Z LLC will be treated as having paid AED 2,300,000 for the business. As a result, no gain or loss accrues to F LLC or Z LLC.

Subsequent transfer

One year later, Z LLC sold the business for AED 3,000,000. Business restructuring relief shall no longer apply because there is a subsequent transfer of the Business which was transferred. As a result, F LLC (the transferor) shall treat the original transfer from F LLC to Z LLC as having taken place at Market Value at the date of the transfer, and F LLC shall take into account a gain of AED 400,000 (AED 2,700,000 – AED 2,300,000) in the Tax Return for the Tax Period in which Z LLC subsequently sold the Business.

Given that the transferor has paid Corporate Tax on the gain arising on the original transfer (due to the clawback), this means that the original gain does not need to be

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