How Does UAE Corporate Tax Impact Cross-Border Mergers & Acquisitions in Dubai?

Corporate tax is now part of every serious deal talk in Dubai. The federal law sets a 9 percent rate on taxable income above AED 375,000 for most businesses, with tax periods starting on or after 1 June 2023.

Free zone companies sit inside the net as taxable persons, although a Qualifying Free Zone Person can enjoy 0 percent on qualifying income and 9 percent on other taxable income.

On top of that, a 15 percent domestic minimum top up tax will apply to large multinationals that meet the EUR 750 million revenue test, aligning the UAE with global minimum tax plans.

These building blocks change how deal teams think about corporate tax in Dubai during cross-border mergers and acquisitions.

How Does Corporate Tax Affect Cross-Border in Dubai?

Before the law, many inbound investors saw Dubai as a near tax free location. Cross-border deals often focused on regulatory approvals and market access with little attention to local profit taxes.

Now buyers ask different questions. They want to know:

• How much of the target’s profit will fall into the 9 percent band.
• How the group treats free zone income and mainland income.
• If future minimum top up tax could raise the overall effective rate.

The Federal Tax Authority reports hundreds of thousands of corporate tax registrations, which shows how wide this system already runs across mainland and free zone businesses. For any acquisition that uses Dubai as a hub, tax is no longer a footnote. It shapes price, structure and post-deal plans.

Pricing and Valuation Under the New Corporate Tax Regime

Enterprise value now has to reflect net cash tax outflows in the UAE, not just in the seller’s home country.

A few simple effects show up in models:

• Forecast free cash flow must include 9 percent tax on steady-state taxable income, with adjustments for reliefs.
• Where the target sits in a free zone, analysts need a view on how much income will stay qualifying and how much could switch to the 9 percent rate as activities grow.
• For very large groups, the 15 percent minimum top up tax becomes a separate line that can eat into projected synergies if profit sits on low taxed entities.

Capital gains at shareholder level may interact with the UAE participation exemption if conditions on ownership, holding period and subject-to-tax tests are met, which can support tax neutral exits for some structures.

Share Deal or Asset Deal Under UAE Corporate Tax

Cross-border buyers still choose between purchasing shares in a UAE entity or buying assets and contracts. Corporate tax rules now push that choice harder.

Share deals

Buying shares usually keeps the corporate tax history, carry-forward losses and relief positions inside the entity. The law provides a participation exemption that can make dividends and capital gains on qualifying shareholdings exempt at UAE level if detailed tests are met.

That can help future intra-group exits. Yet it also means the buyer inherits any historic non-compliance, so tax due diligence has to go deep into past filings and transfer pricing documentation.

Asset deals

Asset deals may trigger immediate taxation of gains in the seller company if no relief applies. At the same time they help the buyer step up asset bases and ring-fence legacy issues.

The corporate tax law includes Business Restructuring Relief and Qualifying Group Relief. These can defer gains on some transfers of businesses or assets inside a qualifying group when Article 26 or 27 conditions are met.

For cross-border M&A where both parties are or will be UAE taxable persons, these reliefs can keep pre-deal realignment tax neutral when the steps are planned and documented properly.

Using Restructuring Relief Before or After a Deal

Many acquisitions in Dubai start with a pre-deal tidy-up. A seller may split real estate away, move an operating unit into a new entity or combine several entities in a merger before the buyer comes in.

Under corporate tax, these movements cannot sit outside the tax system. Business Restructuring Relief allows transfers of an entire business, or an independent part of a business, between taxable persons without recognising gain or loss in taxable income when strict tests are met.

The relief can also apply when an existing business becomes taxable for the first time as a result of a transfer, which is relevant when older free zone structures come into scope. However, there is a clawback period. If key conditions fail within a set time, the deferred gain can revive.

Free Zone Targets and Cross-Border Buyers

Dubai has many targets based in free zones that act as holding, logistics or service hubs.

Corporate tax rules treat free zone persons as taxable. A Qualifying Free Zone Person can access 0 percent on qualifying income and pays 9 percent on other taxable income, as long as substance and transaction tests stay in line with FTA guidance.

For buyers this creates extra questions:

• Will the free zone entity still meet qualifying conditions after the deal.
• Will planned transactions with mainland or foreign group companies turn some income into non-qualifying income taxed at 9 percent.

If the buyer is part of a large multinational, future DMTT rules can also lift low effective rates closer to 15 percent at jurisdiction level.

A structure that once promised long term 0 percent tax may now deliver a blended rate that looks closer to other hubs. Modelling that path early avoids nasty surprises after closing.

What Corporate Tax Means for Due Diligence in Dubai

Due diligence in Dubai used to focus on VAT, customs and local fees. Corporate tax adds a new layer to the checklist.

Buyers now review:

• Corporate tax registration status for every UAE entity in scope, including free zone entities.
• Quality of tax computations, elections for group relief or restructuring relief and any open FTA queries.
• Interaction between transfer pricing policies and taxable income in Dubai, especially where significant margins sit in entities that used to be untaxed.

Sellers who clean up these points and document relief claims before going to market usually defend value better. Buyers who skip these tests now risk paying for past non-compliance along with the business.

How Arnifi Helps Deal Teams Use Corporate Tax Rules Wisely

For cross-border deals that involve Dubai, the tax story has moved on. Law, guides and reliefs give real tools, yet they also create risk if steps are rushed or poorly documented.

Arnifi works with foreign and regional investors who buy or sell UAE businesses. Our team helps map group structures against the corporate tax law, tests how different paths affect tax on transfers and designs step plans that use Business Restructuring Relief, group relief and participation exemption where conditions support them.

We also review registrations, prior year returns and EmaraTax positions so buyers see the real picture before they sign. That lets deal teams treat corporate tax in Dubai as part of the design of a transaction, not just an afterthought once contracts are ready.

FAQs

Does every Dubai company face corporate tax during an acquisition?

Most mainland and free zone entities are in scope of UAE corporate tax, unless they qualify as exempt persons or still sit outside due to very limited activities.

Can a merger in Dubai be tax neutral under corporate tax law?

Yes. Business Restructuring Relief and Qualifying Group Relief can defer gains for qualifying mergers and transfers when strict ownership, business continuity and filing conditions are met.

How do free zones affect M&A tax planning now?

Free zone entities remain attractive, yet buyers must check Qualifying Free Zone Person conditions and model 0 percent on qualifying income plus 9 percent or even 15 percent where rules demand higher rates.

What is the main tax risk in cross-border Dubai deals today?

The biggest risk is hidden exposure due to poor records, missed elections or weak transfer pricing that inflates UAE taxable profit without support, especially inside large multinational groups.

When should deal teams contact Arnifi during a transaction?

It helps to involve Arnifi at the deal-shaping stage, before step plans fix share or asset routes, so the structure and pricing already reflect the UAE corporate tax impact.