Making a Corporate Tax Group: Pros & Cons

Filing corporate tax (CT) returns can be a headache for businesses. Each company under the same ownership may need separate registrations, separate filings, and separate compliance checks. This means more paperwork, higher costs, and extra time spent on administration.

When groups of companies face this situation, the burden feels even heavier. Owners may worry about errors, overlapping reporting, and missing out on possible tax benefits.

One solution under the UAE Corporate Tax Law is to form a corporate tax (CT) group. This option allows two or more eligible companies to be treated as one taxable person. But is it the right move for every business? To answer that, let’s look at the pros and cons of making a CT group.

JCA (Jitendra Chartered Accountants) gives businesses access to comprehensive CT solutions. Our expert corporate tax agents in the UAE simplify taxation for businesses.

What Is a Corporate Tax Group?

A CT group is formed when a parent company and one or more subsidiaries choose to be treated as a single taxable unit. Instead of each company registering and filing separately, the group files one return with the Federal Tax Authority (FTA).

To form a CT group, strict conditions apply. The parent company must own at least 95% of the shares, voting rights, and profits of the subsidiaries. All members must be UAE residents, not exempt persons, not qualifying free zone persons, and they must follow the same financial year and accounting standards.

Pros of Making a CT Group

1. One Registration and One Filing

The biggest advantage is simplicity. Instead of handling multiple corporate tax registrations, the group only needs a single registration. They do need their individual TRNs first then they can apply to become part of tax groups

2. Reduced Compliance Costs

By combining reporting, businesses save time and money. Fewer returns mean fewer administrative tasks, less duplication, and lower accounting costs.

3. No Transfer Pricing Adjustments Between Members

Normally, companies must follow transfer pricing rules when trading with related parties. These rules ensure transactions are at market value. Within a CT group, such adjustments are not required between members, which reduces compliance work.

4. Loss Offset Across the Group

If one company records a tax loss, it can be offset against another company’s profit in the same year. It results in the reduction of the overall tax payable and improves cash flow.

5. Simplified Management for Owners

For large business groups with several subsidiaries, managing tax through one return provides clarity. Owners can view the tax impact across the group instead of reviewing company by company.

Corporate tax agents in Dubai can guide you how your business in particular can benefit from tax group formation.

Cons of Making a CT Group

1. Single Exemption Limit

Every taxable person in the UAE enjoys a basic tax exemption threshold. But in a CT group, the exemption applies once to the whole group, not separately to each company. This reduces the benefit when multiple small entities are grouped together.

2. Mandatory Consolidated Financial Statements

The parent company must prepare consolidated accounts for the entire group. This process can be complex, especially if the subsidiaries operate in different industries.

3. Joint and Several Liability

All members of the CT group are jointly and severally liable for the tax owed by the group. If one company cannot pay, the others may be held responsible. This increases risk exposure for healthy companies in the group.

4. Limited Eligibility

Not all businesses can form a CT group. Only resident juridical persons qualify. Branches of foreign companies, natural persons, and unincorporated joint ventures are excluded. This limits the scope for some groups.

Talk to our corporate tax agents in Dubai and learn whether you should form a tax group or not.

Conditions to Form a CT Group

Before forming a group, companies must check if they meet all legal requirements:

•        All members must be UAE resident juridical persons.
•        The parent must own at least 95% of shares, voting rights, and profits of subsidiaries.
•        Neither the parent nor subsidiaries can be exempt persons or qualifying free zone persons.
•        The financial year and accounting standards must be the same across the group.

Failing to meet these conditions will result in disapproval from the FTA.

Get Expert Advice from JCA (Jitendra Chartered Accountants)

Creating a CT group is not always a simple yes-or-no decision. For some businesses, it means smoother compliance, faster filing, and tax savings from loss offset. For others, it could bring new risks, reduced exemptions, and accounting challenges. JCA’s expert corporate tax agents in the UAE check your ownership structure, size of operations, long-term business goals and then suggest whether tax group formation will simplify your taxation. If yes, then our experts can help you form a tax group seamlessly.