An Overview Of Tax Group Formation Under The UAE Corporate Tax Regime

The UAE corporate tax regime, which will take effect from June 2023, allows companies to form tax groups. Large corporate entities often carry out their activities through a group of companies, which will have a parent company and several subsidiaries. Companies often form tax groups to limit or ring-fence liabilities that come with certain activities and to facilitate the reporting and management of different business lines.

Moreover, tax groups can enhance your overall tax compliance cost where each entity is required to report taxable on a stand-alone basis. To enable companies to leverage such benefits, the UAE corporate tax regime allows tax grouping. You can consult with tax agents in Dubai to apply for the formation of a tax group. The article details the key aspects of forming a tax group under the corporate tax in the UAE.

Conditions for Tax Group Formation under UAE Corporate Tax 

Companies that fall within the scope of corporate tax in the UAE must assess whether they are legally eligible to create a tax group. The UAE Ministry of Finance (MoF) has laid out certain conditions and requirements that will make you eligible to form a corporate tax group in the UAE. Consulting with tax agents in Dubai can help you to assess your eligibility. The following conditions must be met to establish a tax group as per the UAE tax group regime:

  • Companies can form a tax group only if all of the group members are residents of the UAE
  • The parent entity must hold at least 95% of the share capital and voting rights of its subsidiaries
  • The parent company or its subsidiaries should not be an exempted person or a free zone entity that benefits from the 0% corporate tax rate
  • A subsidiary can become a part of a tax group if it is owned indirectly by the parent company and other subsidiaries own at least 95% of its shares
  • A subsidiary can also be a part of the tax group if it is a UAE branch of the parent company or one of its subsidiaries
  • All the members of the tax group should use the same financial year

How to form a tax group under the corporate tax in the UAE? 

Businesses must be ready with all the prerequisites mandated by the Federal Tax Authority (FTA), for which they can seek assistance from tax agents in Dubai. To create a tax group, a notice must be submitted to the FTA. The notice must be signed by the parent company and all of its subsidiaries. The same process must be followed if additional subsidiaries wish to can join an existing tax group.

Treatment of Tax Groups under the UAE Corporate Tax 

Once you form a tax group under the corporate tax regime in the UAE, the FTA will treat it as a single taxable person. The parent company will be responsible for corporate tax administration and payment on behalf of the tax group. Tax consultants in Dubai can provide further insights on the matter.

Determination of Taxable Income  

To determine the taxable income of the tax group, a parent company needs to meet the requirements laid out by the FTA. The parent entity must consolidate the financial accounts of each subsidiary for the relevant tax period, and eliminate transactions between the parent company and each subsidiary member of the group member. The transactions amongst the subsidiary group members must also be eliminated.

Corporate Tax Liability in the Tax Group 

Each subsidiary and the parent company will be jointly and separately liable for the group’s corporate tax for the period during which they are members of the tax group. The joint and individual liability can be limited to one or more named members of the tax group, with approval from the FTA. Tax consultants in Dubai can advise you on the corporate tax liability of a tax group.

Consult with the Best Tax Consultants in Dubai, UAE 

It is critical for businesses to review their commercial and financial situation to meet the regulatory requirements and to determine whether establishing a tax group under the UAE corporate tax is beneficial for all the group entities. Tax agents in Dubai such as Jitendra Chartered Accountants (JCA) can help you to make the right decision regarding the formation of tax groups as per the corporate tax regulations. JCA is one of the leading tax consultants in Dubai committed to delivering the best advisory on corporate tax and its potential impact on your business. JCA can help you prepare for the UAE corporate tax so that your company can meet the regulatory requirements without any hassle.