Most valuation reports in the UAE are ordered for a reason that has nothing to do with tax. A bank wants a security value, a partner is leaving, or an investor wants a number before a term sheet. The report gets delivered, filed in a folder, and forgotten.
Then the Corporate Tax return asks for a position that depends on exactly that number.
Under Federal Decree-Law No. 47 of 2022, market value is not a background concept. It decides whether a restructuring is tax-neutral, whether a payment to a shareholder is deductible, and how much gain is recognised when a group breaks up. A valuation that was never built with those questions in mind can leave a gap that is hard to close after the transaction is done.
Where the law asks for market value
| Provision | What it covers | The valuation question it raises |
|---|---|---|
| Articles 34 and 35 | Transactions between related parties must meet the arm’s length principle. Related parties are identified using a 50% ownership or control threshold, among other tests | Was the price of the share, asset or business what independent parties would have agreed? |
| Article 36 | Payments to connected persons (owners, directors, officers and their related parties) are deductible only up to market value, and only if incurred wholly and exclusively for business | Is the rent, fee or remuneration paid to an owner supportable as a market figure? |
| Article 26 and Ministerial Decision 132 of 2023 | Transfers within a Qualifying Group (75% common ownership), claimed by election in the tax return | If an asset or group member leaves within two years, what was the asset worth? |
| Article 27 and Ministerial Decision 133 of 2023 | Business Restructuring Relief for transferring a business or an independent part of one | Does the non-share consideration stay within the permitted limit? |
| Ministerial Decision 134 of 2023, Article 3 | The transferee adjusts taxable income when assets or liabilities move between related parties at a price different from market value | How far did the price paid sit from market value, and in which direction? |
For the arm’s length side of this, our note on transfer pricing documentation in the UAE covers the Master File and Local File. Valuation is the piece that sits underneath when the “transaction” is a share, a brand or a whole business rather than a service fee.
The nominal value problem in Business Restructuring Relief
Article 27 lets a taxable person transfer its entire business, or an independent part of it, without recognising a gain at the time of transfer. The relief allows only a small amount of consideration other than shares.
Under Ministerial Decision 133 of 2023, the market value of any such other consideration must not exceed the lower of two figures: the net book value of the assets and liabilities transferred, or 10% of the nominal value of the ownership interests issued.
Look at the second limb. It is tied to nominal value, not to what the shares are worth.
An illustration, with invented numbers:
- A mainland company transfers a division with net assets of AED 6,000,000 on its books. An independent valuation puts the business at AED 9,000,000.
- The new company issues 100,000 shares at AED 1 nominal. Nominal value is AED 100,000.
- The cash ceiling is the lower of AED 6,000,000 and 10% of AED 100,000, which is AED 10,000.
If the parties agree a AED 500,000 cash top-up to balance the economics, the cash element is far beyond the ceiling, and the transaction is outside the relief as that Decision is worded. Many founders set share capital at a token figure for convenience. In a restructuring that habit has a direct cost.
The fix is usually structural. Issue shares with a higher nominal value, or settle the difference through a loan account or later adjustment, with advice on whether that route is itself acceptable. The valuation matters here because it tells you how large the economic gap is before the terms are fixed.
The transferor must also make an election to apply the relief, and that is done through the tax return. Our step-by-step guide to corporate tax filing for startups and SMEs explains how the return is structured.
A deal valuation and a tax valuation are not always the same number
A report written to support a sale price can be wrong for tax purposes without being wrong as a valuation. Four differences cause most of the trouble.
Standard of value. Tax rules look for a price agreed between independent parties. A figure that includes synergies available only to one particular buyer is closer to investment value, which is a different thing. If a report was built for a specific acquirer, check which standard it actually used.
Valuation date. The tax outcome is tied to the date of the transfer. A report dated three months earlier, with projections that have since changed, invites questions.
Control and marketability adjustments. Whether a minority discount or a discount for lack of marketability was applied, and why, can move a share value materially. The reasoning needs to be written down, not assumed.
Projection ownership. A discounted cash flow is only as defensible as its forecast. If the projections were prepared by the valuer and not approved by management, the FTA is entitled to ask whose numbers they are.
Relief that can be withdrawn
Qualifying Group relief is not permanent. If a transferred asset, or the group member that received it, leaves the group within two years, the relief is withdrawn and the transfer is treated as having taken place at market value.
In practice, that means the group needs to be able to value the asset at that point, and ideally to have a record of what it was worth when it moved. A group planning a disposal, a listing or an investor entry within two years of an internal transfer should treat the transfer date as a tax event and keep the valuation file accordingly.
What a valuation file should contain if the FTA asks
Records must be kept for seven years under the Corporate Tax Law, and a valuation supporting a tax position belongs in that record set. A file that holds up usually has:
- the valuation date, the standard and premise of value, and the purpose, stated plainly
- the financial statements used, reconciled to audited or management accounts
- projections with evidence of management approval, such as board minutes or a signed approval
- the discount rate build-up with sources, not just the final percentage
- the comparable companies or transactions, with the screening criteria used to select them
- any discount or premium applied, with the reasoning
- sensitivity analysis showing how the value moves when key assumptions change
- a short note linking the valuation to the specific tax position it supports
Treat this the way you would treat any other control. We wrote about building internal tax controls before the FTA asks and a valuation file belongs in the same system, with an owner and a review date.
When to involve a valuer
Before the terms are fixed. A valuation commissioned after signing can only describe a deal. One commissioned before can shape it: the share structure, the consideration mix, the timing of a group exit.
ANG Arabia’s business valuation and transfer pricing teams work on these questions together, so the number and the tax position are built in one place.
Frequently asked questions
Does every related-party share transfer need a valuation?
Related-party transactions must meet the arm’s length principle, and a share price is a transaction. How formal the support needs to be depends on the size and nature of the transfer, but some documented basis for the price should exist.
Can a valuation prepared for a bank or investor be reused for tax?
Sometimes. It needs to be checked against the standard of value, the date, and who owned the projections. If any of those do not match the tax purpose, it needs updating.
Is Business Restructuring Relief automatic if conditions are met?
No. The transferor has to make an election to apply it.
This article is general information and not tax or valuation advice. Rules and thresholds should be checked against the current legislation and FTA guidance before acting.