Selling a business is a major milestone, but the headline sale price is not the amount that ends up in your pocket. Tax can significantly affect your net proceeds, and decisions made during the sale process can affect your tax position. Understanding the key considerations early helps avoid surprises and preserves flexibility. As part of our sell-smart series, our experts outline what these considerations are in the UAE.
Understand your likely tax position early
Before detailed negotiations, establish what taxes may arise and get an early estimate of net proceeds. Treatment depends on deal structure, what’s being sold, and shareholder circumstances. For UAE founders, this typically means:
- Personal vs. corporate holding: gains on shares held personally (outside a licensed business activity) generally fall outside UAE Corporate Tax, as there is no personal capital gains tax. Shares held through a UAE company fall within Corporate Tax (9% above AED 375,000) unless an exemption applies.
- Participation exemption: available to corporate sellers on a qualifying shareholding (broadly, 5%+ ownership, a 12-month holding period, and a subject-to-tax test). Confirm eligibility early, not once a buyer is at the table.
- Free Zone status: structure the deal so Qualifying Free Zone Person status is not inadvertently jeopardised.
Share sale or asset sale?
Whether the buyer acquires shares or the underlying business or assets carries very different tax consequences for both sides, and should be discussed alongside commercial terms, not after the structure is fixed.
- Corporate Tax: a share sale may be exempt under the participation exemption; an asset sale has no equivalent relief.
- VAT: share sales are an exempt supply (no VAT charged, but this can restrict recovery of VAT on deal costs); asset sales may attract 5% VAT, though going-concern relief can apply.
- Buyers often prefer assets (selective acquisition, stepped-up basis); sellers often prefer shares (cleaner exit, better tax outcome). This tension is frequently reflected in price.
Don’t overlook the deal structure
How you are paid matters as much as how much.
- Cash at completion is the simplest option – consideration and tax timing broadly align.
- Deferred consideration and earn-outs raise timing questions (are they taxed at completion, or on receipt?) and can create a cash-flow mismatch. Where a founder stays on post-completion, earn-outs can also be scrutinised as disguised employment income rather than deferred proceeds.
- Consideration in buyer shares needs valuing for tax purposes and raises a further question of whether those shares would themselves qualify for exemption on a future sale. Escrow and retention amounts raise the same timing issues, as a form of deferred consideration.
Consider tax as part of the negotiations
Tax should not be a separate exercise bolted on after the commercial deal is agreed.
- Tax warranties and indemnities (covering historic Corporate Tax, VAT, and other tax compliance) are genuinely negotiable – caps, time limits, and escrow all affect your real economic outcome.
- Deal costs carry VAT that may not be fully recoverable, particularly in a share sale – this affects net proceeds too.
- A lower price with clean, capped warranties can leave you better off than a higher price with open-ended indemnities.