A complete practical guide for companies in Dubai
The corporate tax system in the United Arab Emirates created by Federal Decree Law number 47 of 2022 changed how groups in Dubai approach mergers reorganisations and internal transfers of business. One of the most important tools in this system is Business Restructuring Relief in the UAE Article 27. It allows qualifying restructuring transactions to take place on a tax neutral basis so that no immediate gain or loss is recognised for corporate tax purposes when certain conditions are met.
For groups that operate in Dubai and across the Emirates this relief is now central for planning mergers spin offs hive downs legal mergers and similar transactions.
Legal basis for Business Restructuring Relief
Business Restructuring Relief is provided in Article 27 of the Corporate Tax Law. The detailed conditions and practical application are clarified in the Business Restructuring Relief Guide issued by the Federal Tax Authority and in Ministerial Decision number 133 of 2023 which sets rules for elections and record keeping.
These acts together define when a restructuring can be treated as tax neutral and when the relief must be clawed back.
What Business Restructuring Relief actually does
If the conditions in Article 27 are met no gain or loss is taken into account when calculating taxable income for both the transferor and the transferee on a qualifying transfer of a business or of an independent part of a business.
This means that unrealised gains on assets and liabilities transferred as part of the business are not taxed at the moment of restructuring. Instead the tax consequences are deferred to a later event such as a future sale that does not benefit from any relief.
For a Dubai business this can dramatically reduce the cash tax impact of reorganising the group.
Core legal conditions for Business Restructuring Relief
According to the UAE Corporate Tax Law and the ministerial decision the following conditions apply.
One
The transaction must involve a business or an independent part of a business
The transfer must cover a complete business or a functionally independent part of a business that can operate on its own and generate income. It is not enough to move individual assets or liabilities that do not amount to a business activity on their own.
Examples of an independent part of a business:
• A separate branch that carries out a distinct commercial activity
• A division with its own income costs employees and customers
• A product line that can operate as a stand alone business after the transfer
Transfers of isolated items such as only vehicles or only inventory usually do not qualify.
Two
Both transferor and transferee must be taxable persons and cannot be exempt persons or qualifying free zone persons
Both parties must be taxable persons under the Corporate Tax Law. At the same time neither party can be an exempt person or a qualifying free zone person in the tax period when the restructuring takes place.
Three
Consideration must be in the form of ownership interests
The transferor must receive shares or other ownership interests in the transferee. In some structures the consideration may be provided by a shareholder that directly or indirectly holds at least half of the ownership interests in the transferee.
If the transferor receives cash or other non equity consideration the transaction will not qualify for the relief.
Four
An election must be made in the prescribed form
The transferor must elect to apply Business Restructuring Relief. The election must be made in the form and manner specified by the Federal Tax Authority and both parties must keep the required documentation.
Without a valid election the transaction will be treated as a normal taxable transfer.
Five
Financial years of transferor and transferee must end on the same date
The financial year of both parties must end on the same date so that the tax period during which the restructuring occurs is aligned for both entities.
Six
Small business relief cannot be applied together with Article 27
A company cannot combine small business relief and Business Restructuring Relief in the same tax period.
Clawback rules and the critical two year period
Business Restructuring Relief is subject to clawback. If certain events occur within two years from the date of the qualifying transfer the relief is cancelled and the transfer is treated as having been made at market value.
Clawback may occur if:
• Shares or ownership interests issued as consideration are sold or transferred to a person who is not part of the same group
• The transferred business or independent part of a business is sold transferred or discontinued
• Any other condition for the relief ceases to be met
If clawback applies the transfer becomes taxable in the period in which it originally occurred which may create additional tax and penalties.
Practical advantages for Dubai based businesses
When used correctly Business Restructuring Relief in the UAE Article 27 provides several advantages for companies in Dubai.
Support for mergers and consolidations
Groups can combine or merge entities without triggering immediate taxation on embedded gains.
Facilitation of spin offs
A company can move a separate division into a new entity for investment funding or strategic purposes on a tax neutral basis.
Succession planning
Family owned groups in Dubai can reorganise activities among holding companies and operating entities in preparation for future succession without immediate tax impact.
Investment readiness
A clear and efficiently structured corporate group is more attractive to investors and financial institutions.
Typical structures where Article 27 can apply
Legal merger of two subsidiaries
A holding company merges two wholly owned subsidiaries by transferring the entire business of one into the other. If conditions are met the transaction qualifies for Article 27.
Spin off of a business line
A company moves one of its divisions including assets liabilities employees and contracts into a new entity and receives shares as consideration. The transfer can be tax neutral if it represents an independent business.
Reorganisation involving permanent establishments
A permanent establishment can in some cases transfer its business to another taxable person in the UAE if all conditions are met. Transfers between a permanent establishment and its head office do not qualify.
Compliance documentation
Dubai based companies must keep organised documentation such as:
• Agreements governing the restructuring
• Records of ownership interests issued
• Structure charts before and after restructuring
• Financial statements showing existence of a business or independent part
• Evidence that both parties are taxable persons and not exempt or qualifying free zone persons
• A copy of the election submitted for Article 27
These records support compliance in case of an audit.
Strategic recommendations for companies in Dubai
To use Business Restructuring Relief effectively companies should:
• Check each legal condition before executing the restructuring
• Confirm group status regarding exempt person rules and free zone rules
• Align financial year ends in advance
• Plan the form of consideration carefully
• Maintain stable ownership structure for at least two years
• Seek advice from specialists experienced in UAE corporate tax
Conclusion
Business Restructuring Relief in the UAE Article 27 is a significant tool for companies in Dubai that want to reorganise their structure without immediate corporate tax exposure. It supports mergers spin offs internal reorganisations and long term strategic planning when all conditions are met.
Correct use of this relief requires attention to eligibility conditions documentation and the two year clawback period. With proper planning it helps companies in Dubai grow and reorganise efficiently in the new corporate tax environment.
