With the introduction of Corporate Tax in the United Arab Emirates under Federal Tax Authority regulations, financial reporting and transaction structuring have taken on a new level of importance. One area that has moved from being a “technical accounting exercise” to a strategic tax and valuation matter is Purchase Price Allocation (PPA).
If your company is involved in mergers, acquisitions, group restructurings, or business transfers in the UAE, understanding PPA is now critical—not optional.
What is Purchase Price Allocation (PPA)?
Purchase Price Allocation is the process of allocating the purchase consideration paid in a business acquisition to:
- Identifiable tangible assets
- Identifiable intangible assets
- Liabilities assumed
- Residual goodwill
Under IFRS (particularly IFRS 3 – Business Combinations), companies must measure acquired assets and liabilities at fair value on the acquisition date.
In simple terms:
When you buy a company, you are not just buying “a business.” You are buying:
- Brand value
- Customer relationships
- Technology
- Contracts
- Licenses
- Workforce
- Property and equipment
- And possibly goodwill
PPA determines how much of the purchase price relates to each component.
Why PPA Has Become More Important in the UAE After Corporate Tax
The UAE Corporate Tax regime (effective for financial years starting on or after 1 June 2023) has significantly changed the relevance of PPA.
Here’s why:
1. Tax Depreciation & Amortization Impact
Under UAE Corporate Tax:
- Depreciation and amortization may affect taxable income.
- Intangible assets identified in a PPA (e.g., customer lists, trademarks, software) may be amortizable.
- The higher the allocation to amortizable assets, the more structured the tax outcome.
A poorly structured PPA can:
- Reduce future tax efficiency
- Create disputes with tax authorities
- Trigger transfer pricing complications
2. Goodwill Treatment Matters More Now
In many acquisitions, a significant portion of the purchase price ends up as goodwill.
However:
- Goodwill is generally not amortized under IFRS.
- Tax treatment of goodwill may differ from accounting treatment.
- Impairment losses may not always be tax-deductible.
This creates temporary and permanent differences, directly impacting deferred tax calculations.
3. Increased FTA Scrutiny
The Federal Tax Authority now reviews transactions more closely, especially:
- Related-party transfers
- Group reorganizations
- Management buyouts
- Cross-border acquisitions
An aggressive or unsupported allocation of purchase price can be challenged.
Companies must ensure:
- Independent valuation support
- Proper documentation
- Consistency with transfer pricing policies
4. Impact on Transfer Pricing
Under UAE Corporate Tax Law, related-party transactions must comply with arm’s length principles.
If:
- A group entity in the UAE acquires another group company,
- The purchase price must reflect fair market value.
PPA becomes part of the arm’s length defense documentation.
Improper valuation may:
- Trigger transfer pricing adjustments
- Increase taxable profits
- Lead to penalties
Key Components of PPA in the UAE Context
When performing PPA in the UAE, companies should carefully assess:
1. Tangible Assets
- Real estate (especially in Dubai, Abu Dhabi, Sharjah markets)
- Machinery & equipment
- Vehicles and logistics fleets
- Inventory
2. Identifiable Intangible Assets
This is where many UAE businesses underestimate value.
Common intangible assets include:
- Trade names & trademarks
- Customer contracts
- Customer relationships
- Franchise agreements
- Technology platforms
- Software systems
- Distribution rights
In sectors such as:
- Real estate
- Healthcare
- Education
- Logistics
- Technology startups
- Family businesses transitioning ownership
Intangibles often represent significant hidden value.
Common Mistakes UAE Companies Make
❌ 1. Treating PPA as a “Year-End Accounting Exercise”
Many businesses wait until audit season to think about PPA. This is risky.
PPA should be planned during:
- Deal structuring phase
- SPA negotiation stage
- Due diligence stage
❌ 2. Ignoring Deferred Tax Implications
Fair value adjustments create:
- Temporary differences
- Deferred tax liabilities (DTLs)
- Deferred tax assets (DTAs)
In the UAE’s new tax regime, these are now highly relevant.
❌ 3. Over-Allocating to Goodwill
Some acquirers prefer allocating more to goodwill to avoid detailed valuations.
This can:
- Reduce amortization benefits
- Increase impairment risk
- Attract tax authority scrutiny
❌ 4. Lack of Independent Valuation Support
Corporate tax enforcement has increased the importance of independent valuation experts.
A defensible PPA report should include:
- Valuation methodology (Income approach, Relief-from-Royalty, MPEEM, etc.)
- Discount rate justification
- Sensitivity analysis
- Market benchmarking
Strategic Importance of PPA in M&A Deals
In the UAE’s fast-growing M&A market:
- Family business transitions
- Private equity investments
- Cross-border GCC acquisitions
- Startup exits
- Free zone reorganizations
PPA affects:
- EBITDA presentation
- Post-acquisition profitability
- Bank covenant calculations
- Investor reporting
- Tax planning models
It is no longer just a compliance requirement—it is a financial strategy tool.
Industries in the UAE Where PPA is Critical
1. Real Estate & Development
Project-based assets, brand reputation, and customer advances complicate fair value measurement.
2. Healthcare & Education
Licenses, patient databases, KHDA or health authority approvals have measurable value.
3. Technology & AI Startups
In many cases, 70–90% of acquisition value lies in intangible assets.
4. Logistics & Transportation
Route rights, contracts, and fleet values require detailed allocation.
How Corporate Tax Changes the Conversation
Before Corporate Tax, PPA in the UAE mainly impacted:
- Financial statements
- Audit compliance
Now it impacts:
- Cash tax payments
- Effective tax rate
- Deferred tax balances
- Transfer pricing documentation
- Group restructuring strategy
The financial impact is immediate and measurable.
Best Practices for UAE Companies
To ensure compliance and strategic advantage:
✔ Engage valuation experts early
✔ Align accounting and tax teams
✔ Document assumptions clearly
✔ Perform sensitivity analysis
✔ Integrate PPA into tax planning models
✔ Review implications for VAT and transfer pricing
Final Thoughts
Purchase Price Allocation in the UAE has moved from being an accounting technicality to a core tax, valuation, and strategic planning function.
With Corporate Tax now active in the UAE, companies must:
- Treat PPA seriously
- Support allocations with robust valuation
- Align accounting and tax positions
- Anticipate FTA scrutiny
A well-executed PPA can optimize tax efficiency, strengthen compliance, and enhance investor confidence.
A poorly executed one can create years of tax exposure.
Need Expert Support?
At Prabix, we support UAE businesses with:
- IFRS-compliant PPA
- Independent valuation reports
- Corporate Tax structuring
- Deferred tax modelling
- Transfer pricing alignment
If your company is planning an acquisition, restructuring, or group reorganization, now is the time to integrate PPA into your tax and financial strategy.