UAE Corporate Tax: Benefits and Requirements of Forming a Tax Group

The provision of tax groups in the UAE corporate tax regime provides great relief for business owners. They can seek the help of corporate tax consultants in Dubai to understand the process of forming a tax group. Corporate entities seeking better management and reporting often structure their business as groups. Moreover, they can enjoy the tax benefits and reliefs that are generally available to tax groups.

By forming a corporate tax group in the UAE, businesses can also enjoy benefits such as better tax planning and reduction of compliance costs. The UAE corporate tax Public Consultation Document provides a detailed description of the benefits and requirements associated with tax groups. However, it is advisable to seek advice from corporate tax advisors in Dubai before making any decision as the government is yet to issue the Corporate Tax Law. This article will provide you with valuable insights into the benefits and requirements of forming a Tax Group.

Who Can Form a Tax Group Under UAE Corporate Tax?

UAE resident group of companies can form a tax group if its parent company holds a minimum of 95% share capital and voting rights of its subsidiaries. Consult with corporate tax consultants in Dubai to assess if you are eligible to create a tax group. The following conditions must be met to form a tax group in the UAE:

  • Any of the parent company or subsidiaries should not be an exempt person
  • Any of the parent company or its subsidiaries should not be a free zone person leveraging a 0% corporate tax rate
  • All members of the tax group must use the same financial year

Can a Subsidiary Be Part of the Corporate Tax Group?

A subsidiary can be part of the UAE corporate tax group under the following conditions:

  • If it is owned indirectly by the parent company and other subsidiaries own at least 95% of its shares; or
  • If it is a UAE branch of the parent company or one of its subsidiaries

Treatment of a Tax Group Under Corporate Tax

The tax group will be treated as a single taxable person under the UAE corporate tax regime. This means that the basic exemption limit will be applied once not based on the companies involved but more clarity will be given by the final law. The parent company should undertake the responsibility of administration and payment of the corporate tax on behalf of the group. Corporate tax advisors in Dubai can help you with the administration and payment of the corporate tax.

How Can We Determine the Taxable Income of a Tax Group?

To determine the group’s taxable income, the parent company needs to consolidate the financial accounts of each subsidiary for the relevant tax period, eliminating the transactions between the parent entity and each subsidiary group member (and amongst the subsidiary group members).

Liability Toward the Group’s Corporate Tax

The parent company and each subsidiary will be jointly and severally liable for the group’s corporate tax for the period during which they are members of the group(like VAT Tax Group). It is possible to limit the joint and several liabilities to one or more named members of the tax group. However, you need to obtain approval from the Federal Tax Authority (FTA) to limit this liability. Corporate tax consultants in Dubai can help you get the FTA approval for limiting the liability.

Transfer of Losses under the UAE Corporate Tax

There will be groups of companies that do not meet the minimum 95% common ownership requirement or that do not want to form a tax group. Such companies will be allowed to have a transfer of tax losses from one Group Company to another group company with profits subject to certain conditions. The following are those conditions:

  • The UAE group companies must be at least 75% commonly owned
  • The companies should not be under the exempt category or subject to a 0% free zone corporate tax regime 
  • The total tax loss offset should not exceed 75% of the taxable income of the company receiving the transferred losses in the relevant period

Corporate Tax Group Relief for the Companies

The proposed corporate tax regime will allow the companies to have an exemption or deferral of corporate tax with respect to the transfer of assets or liabilities between members of a group. This provision allows businesses to reorganise themselves without triggering an unnecessary tax charge. Furthermore, the regime will allow certain corporate reorganisation transactions such as mergers to be undertaken on a tax-neutral basis so that taxable gains or losses can be eliminated.

Intra-group Transfer of Assets and Liabilities 

Intra-group transfer relief is possible for the transfer of assets and liabilities between UAE resident companies that are at least 75% commonly owned. However, it will be subject to the condition that the assets and/or liabilities being transferred remain within the same group for a minimum of three years. Businesses can plan for intra-group relief with the help of corporate tax advisors in Dubai. Any restructuring relief will be ‘clawed back’ if, within three years of the restructuring, there is a subsequent transfer of the business to a third party. In this situation, any gain or loss that would have arisen upon the initial transfer would need to be calculated and included in the tax return for the tax period of the third-party disposal.

Restructuring Relief under UAE Corporate Tax

The UAE corporate tax regime permits a deferral of taxation where a whole business, or independent parts of a business, are transferred in exchange for shares or other ownership interests. This will facilitate mergers, spin-offs and other corporate restructuring transactions. Avail of the best corporate tax services in Dubai to leverage restructuring relief under the corporate tax regime.

Consult with the Best Corporate Tax Advisors in Dubai

Businesses that wish to form a corporate tax group can consult with corporate tax consultants in Dubai to assess their eligibility criteria such as ownership, and tax residency status. If the businesses find any difficulty in assessing the eligibility or aligning tax years, they can seek professional assistance from the best tax advisors in Dubai such as Jitendra Chartered Accountants (JCA).

Our services at JCA as Corporate Tax Consultants include CT Assessment & Advisory Services (one-time or retainer basis), CT Compliance Services & CT Agent Services to Represent to Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE.