Business Restructuring Relief (BRR) in the UAE

🇦🇪 Business Restructuring Relief (BRR) in the UAE – Summary Guide (2025)

The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) provides Business Restructuring Relief under Article 27, allowing certain qualifying restructuring transactions to occur tax neutrally (i.e., no immediate tax on gains or losses) if specific conditions are met.

✅ What Is Business Restructuring Relief?

It is a corporate tax relief that allows for mergers, demergers, business transfers, and reorganisations without triggering an immediate corporate tax liability — provided the transaction has valid commercial reasons and meets detailed legal, accounting, and structural criteria.

🏗️ Types of Qualifying Transactions

There are two main categories:

1. Article 27(1)(a) – Transfer of Business or Independent Part

➡️ Transfer of entire business or a distinct part from one Taxable Person to another (both must remain in existence).

2. Article 27(1)(b) – Transfer Where Transferor Ceases to Exist

➡️ Transfer of entire business from one or more Taxable Persons to another, where the Transferor dissolves or ceases to exist.

📌 Conditions to Qualify for BRR

To apply BRR, all the following must be met:

✅ Legally Compliant

Transaction must be valid under UAE commercial laws (e.g., Companies Law)

✅ Both Entities are Taxable Persons

Must be Resident or have a Permanent Establishment (PE) in UAE

❌ Not Exempt or Qualifying Free Zone Person

Neither party can be exempt or QFZP under Article 4 or 18

✅ Same Financial Year-End

Both parties must end FY on same date

✅ Same Accounting Standards

Both must use either IFRS or IFRS for SMEs

✅ Valid Commercial Reasons

Must be real business need (e.g., consolidation, separation, investment round), not for tax avoidance

💰 Consideration Rules

• Must generally be in the form of shares or ownership interests.

• A small cash component is allowed:

  • Up to 10% of net book value of transferred assets, or

  • Up to 10% of nominal value of issued shares (whichever is lower).

📊 Tax Implications

• Assets and liabilities are transferred at net book value (no gain/loss recognized).

• Depreciation/amortization adjustments must be made by the transferee.

• BRR must be elected by the Transferor — it is not automatic.

• Documentation must be maintained to support the transaction's commercial rationale.

🔁 Clawback Triggers (within 2 years)

BRR can be reversed (i.e., gain/loss becomes taxable) if:

1. Ownership of Transferor or Transferee changes by more than 50%, or

2. The Transferred Business is disposed of to another party.

🚫 Non-Qualifying Scenarios

• Transfers on liquidation.

• Transfers without proper consideration (unless specific exceptions apply).

• Transfer between a UAE PE and its foreign head office.

• Transfers involving a Qualifying Free Zone Person.

📝 Examples

1. Sole Proprietor incorporates his business into a new UAE company in exchange for shares – ✅ Eligible.

2. Parent company transfers a division to a new subsidiary – ✅ Eligible, if shares are issued.

3. Wholly owned subsidiary transfers assets to parent without share issue – ❌ Not eligible (may use Group Relief instead).

📅 Effective Date:

Applies to transactions from 1 June 2023 onward.

📌 Practical Tips:

• File election for BRR with the FTA at time of tax return.

• Keep legal documents, valuation reports, board resolutions.

• Consider FTA Clarification Request if unsure whether your case qualifies.