Exploring Tax Groups Under Corporate Tax

By Kitaab

While we are exploring the newly introduced Corporate Tax, in the UAE we wish to also present yet another intriguing concept - Tax Groups under this new tax regime. In this blog post we will delve into the core aspects of Tax Groups examining their definition, requirements for formation and the roles and advantages they offer.

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What is a Tax Group?

Tax Groups: A Tax Group is when two or more Taxable persons are treated as a single taxable person as per UAE Corporate Tax

What are the Conditions for Formation of a Tax Group

Both Parent and Subsidiary must be resident juridical persons having same financial year and prepared financial statements using the same accounting standards.
Parent company must own at least 95% of the share capital of the subsidiary
Parent company must hold at least 95% of the Voting rights of the subsidiary
Parent company is entitled to at least 95% of the subsidiary’s profits and net assets
A Tax Group cannot include an Exempt Person or a Qualifying Free Zone Person.

The Taxable Income of a Tax Group shall be the Income in the consolidated financial accounts including that of each subsidiary that is a member of the Tax Group for the relevant Tax Period. Intra-Group transactions shall be eliminated for the purpose of calculating taxable income of the Tax Group.

The parent company shall be responsible for settling the corporate tax due and apply for a refund.

The parent company shall be responsible for complying with the requirements to register and deregister for CT on behalf of the Tax Group.

The parent company shall be responsible for filing corporate tax returns, maintaining relevant financial statements, keeping adequate records, maintaining transfer pricing documents and submitting clarifications to authorities.

The Parent company and Subsidiaries registered in a Tax Group shall be jointly and severally liable to meet the CT liability of the Tax Group (each member has standalone liability to meet the obligations of the Tax Group.

A Subsidiary may join an existing Tax Group by submitting an application to the authority by the Parent and Subsidiary Company. Similarly, an entity shall leave the Tax Group also.

The parent company can be changed by the Tax Group upon making an application to the Authority and if the new parent meets the required criteria. Also, the Authority may in its own discretion dissolve a tax group or change the parent company.

Loss carried forward and set off shall be in accordance with rules prescribed.

The Tax Groups within the framework of UAE Corporate Tax do not just offer an approach to taxation but also require coordinated efforts from all participating entities. It is crucial for businesses aiming to leverage the benefits of this unified tax model to have an understanding of how Tax Groups are formed, operated and the flexibility they provide. As the tax landscape continues to evolve staying well informed about these dynamics becomes a necessity for corporations in the UAE.