Business Valuation for Corporate Tax

The law does not generally mandate a valuation report by name. It requires that certain transactions and positions reflect market value or arm's length pricing, and that the taxable person can support them. In practice, an independent valuation is often the most straightforward way to meet that burden — particularly for material amounts or where no comparable market evidence is readily available.

It requires that transactions between related parties be priced as they would have been between independent parties in comparable circumstances. It is set out in Article 34 of Federal Decree-Law No. 47 of 2022 and follows the approach used internationally under OECD transfer pricing principles. The obligation applies to the transaction regardless of the size of the business.

Under Ministerial Decision No. 97 of 2023, a master file and local file are generally required where the taxable person's revenue in the relevant tax period reaches AED 200 million, or where it forms part of a multinational group with consolidated revenue of AED 3.15 billion or more. Documentation is generally to be provided on request by the Federal Tax Authority within 30 days. Below these thresholds the arm's length obligation still applies — only the formal file requirement differs. Thresholds should be verified for the relevant period.

Article 61 and Ministerial Decision No. 120 of 2023 allow a taxable person to exclude gains attributable to periods before Corporate Tax applied, for certain qualifying assets held on a historical cost basis — immovable property, intangible assets, and financial assets and liabilities. Applying the relief generally requires establishing a value at the start of the first tax period, which is why it is a valuation exercise as much as a tax one.

The election is made with the first tax return for the relevant category of asset and is irrevocable. Whether an election remains available to a particular business depends on its first tax period, its filing history and the specific conditions in the decision. This is a fact-specific question that should be reviewed against current Federal Tax Authority guidance rather than assumed either way.

Yes. Free zone status does not remove the arm's length principle, and free zone entities with related party transactions are subject to the same documentation thresholds. Pricing between a free zone entity and mainland or foreign affiliates is an area that attracts scrutiny precisely because of the differing tax treatment involved.

Market value is the price at which an asset or business would change hands between willing, unconnected parties dealing at arm's length — the concept tax provisions generally rely on. Fair value is a measurement basis defined by the applicable IFRS Accounting Standard, with its own hierarchy and requirements. The two frequently produce similar answers but are derived under different frameworks and should not be used interchangeably without stating which applies.

Transfers of assets or liabilities within a qualifying group under Article 26 generally operate on a no gain or loss basis rather than at market value, subject to conditions and an election by the transferor. Market value becomes relevant if the relief is clawed back — for example where the asset or the relevant entities leave the group within two years — because the transfer is then treated as a disposal. Establishing the value at the original transfer date supports that position.

Business restructuring relief under Article 27 concerns the transfer of a business, or an independent part of one, generally in exchange for shares or ownership interests, on a no gain or loss basis subject to conditions including a two-year holding requirement. Understanding what the business and the consideration are worth supports both the commercial rationale for the transaction and the position if relief is later clawed back.

Not usually without further work. Transaction valuations are typically prepared as a negotiating range, at a commercial date, and may reflect value specific to a particular buyer. Tax provisions generally ask for market value between unconnected parties at a prescribed date. The underlying analysis often overlaps, but the basis, date and documentation standard need to be aligned to the tax purpose.

Article 36 addresses payments or benefits to connected persons — broadly owners, directors and officers of the business and their related parties. Deductibility generally depends on the payment corresponding to the market value of the service or benefit actually provided, and being incurred wholly and exclusively for the business. This makes owner remuneration and related arrangements a recurring area where supportable evidence matters.

Fees depend on what is being valued, the number of entities or assets involved, the quality of available financial information, and the level of documentation the position requires. A single share valuation with clean records is a smaller engagement than a group-wide transitional rules review across multiple asset categories. KGRN provides a fee proposal after discussing the provision involved and the position being supported.

The strength of the position rests on the quality of the supporting analysis: whether an appropriate basis of value was applied, whether the methodology is recognised, whether assumptions were reasonable at the valuation date, and whether the evidence was documented at the time. A contemporaneous, well-reasoned valuation is a far stronger starting point than a figure with no analysis behind it. Where a dispute arises, tax advisors and legal advisors should be engaged on the process itself.

Corporate Tax record-keeping obligations extend to the records and evidence supporting the positions taken in a return, not just the return itself. Because retention periods and their application depend on the type of record and the taxable person's circumstances, the current requirement should be confirmed against Federal Tax Authority guidance rather than assumed.

There is no general rule requiring independence, and management can prepare a supportable analysis. The practical consideration is credibility: where the amounts are material, the parties are related, or the position may be reviewed, an independent valuation prepared to a documented methodology carries more weight than an internal estimate produced by those who benefit from the outcome.