A PPA can create large new depreciation and amortisation charges. Whether those charges also reduce your UAE corporate tax depends mostly on one question: did you buy the business, or the shares in the company that owns it?
The starting point
UAE corporate tax is calculated from each taxable person's accounting profit in its own financial statements, with specific adjustments. There is no separate capital allowance system: depreciation and amortisation in the accounts generally follow through to the tax computation, provided the expense is incurred wholly for the business.
Share deal: the step-ups usually stay in the consolidated accounts
When you buy shares, the target company keeps its own books at the old values. The PPA adjustments live only in the consolidated accounts of the buyer's group. Corporate tax is assessed on each company's own statements, and even a UAE tax group works from its members' standalone accounts. So the extra amortisation from a share-deal PPA generally gives no tax deduction.
That gap between book value and tax value is exactly why IFRS requires a deferred tax liability on the step-ups in the consolidated accounts.
Asset or business deal: the PPA reaches the tax return
When a UAE company buys a business directly, the assets, intangibles and goodwill go onto its own balance sheet at their allocated values. Then:
- Tangible assets are depreciated from their new values, and the depreciation generally follows into the tax computation.
- Intangibles with a finite life, such as customer relationships, technology and licences, are amortised, and the amortisation generally reduces taxable profit.
- Goodwill is not amortised under full IFRS, so there is no annual charge to deduct. The tax treatment of a later goodwill impairment is not specifically addressed in FTA guidance yet. Take advice before relying on a deduction.
So in an asset deal, how the price is split matters for tax. More value allocated to shorter-lived intangibles and equipment means faster deductions. That allocation must be supportable at fair value. Tax authorities look closely at allocations that seem to favour the buyer.
Restructurings and group transfers
Two reliefs can change the picture:
- Qualifying group relief (Article 26) lets assets move between companies with 75% common ownership at net book value, with no gain and no step-up.
- Business restructuring relief (Article 27) does the same for transfers of a whole business, or an independent part of one, in exchange for shares.
Both have a two-year clawback if the conditions are broken. Where relief applies, the buyer inherits the seller's tax values, so a PPA step-up in the accounts will not be matched for tax.
The seller's side
A seller is taxed on any gain at 9%, unless an exemption applies. Gains on qualifying shareholdings of 5% or more, held for at least 12 months, can be exempt under the participation exemption. Buyers and sellers therefore often prefer different deal structures, and the PPA is part of that negotiation.
Before you sign
- Model the deal both ways: share purchase and asset purchase.
- Ask for a draft PPA before closing, not after, so the tax effect is in the price.
- Check transfer pricing if the seller is a related party: the price must be at market value.
- Make sure the deferred tax in the consolidated accounts uses the right rate.
How iConsult can help
We prepare PPAs that work for the auditors and for the tax return. Read what a PPA involves, why IFRS 3 requires it, see our valuation services or book a free consultation.
This article is general information, not legal or tax advice. It reflects the rules as we understand them on the date shown; laws and guidance change, so check the current position or talk to us before you act.