As corporate tax in the UAE has become effective, businesses that fall under its scope need to register for corporate tax and file an annual return. Forming a corporate tax group in the UAE is one of the registration options available for companies. Two more taxable persons can form a tax group to be treated as a single taxable person as per the UAE Corporate Tax Law.
By opting for this option, a group can obtain a single UAE corporate tax registration and file a single return to the Federal Tax Authority (FTA). However, businesses need to make a decision about whether forming a UAE corporate tax group is ideal for their corporate structure and operations. Corporate tax consultants in Dubai can advise whether it makes sense to form a tax group. Further, you need to analyze the pros and cons of creating a corporate tax group in the UAE. In this blog, we will discuss the pros and cons of forming such a group. Read ahead for more insights:
Pros of Starting a Corporate Tax Group
Forming a corporate tax group in the UAE seems to be an efficient compliance method. However, you need to first evaluate its benefits with the help of corporate tax advisers in Dubai. Given below are some of the important benefits of establishing a corporate tax group:
- Only a single corporate tax registration in the UAE
- Only a single filing required
- No applicability of Arm’s length principles and Transfer Pricing Documentation.
- Losses of one company set off in the same year with another company leading to cash benefits
- Lower compliance burden due to single Corporate Tax return
Cons of Forming a Corporate Tax Group
Apart from its benefits, corporate tax group formation carries certain disadvantages as well. The following are some of the cons of forming a UAE corporate tax group:
- Single exemption limit irrespective of tax group members
- Mandatory to prepare consolidated financial statements
- Triggers joint as well as several liabilities
- Potential complications on engaging in M&A activity
- Limited to parent-subsidiary relationships, resident and taxable persons
Conditions to form a corporate tax group in the UAE
A tax group should meet the conditions set out in Article 40 of the UAE Corporate Tax Law to be treated as a single taxable person. The conditions to form a corporate tax group are:
- Only resident persons are eligible. No Permanent Establishments (PE) or branches of foreign companies in the UAE can become a part of the corporate tax group.
- Only juridical resident persons can be a part of the group
- Only juridical resident persons can join a CT Group. Natural persons and unincorporated JVs are ineligible.
- The Parent Company must own at least 95% of the share capital of the Subsidiary, either directly or indirectly, through one or more Subsidiaries.
- The Parent Company must hold at least 95% of the voting rights in the Subsidiary, either directly or indirectly, through one or more Subsidiaries.
- The Parent Company is entitled to at least 95% of the Subsidiary’s profits and net assets, either directly or indirectly, through one or more Subsidiaries.
- Neither the Parent Company nor the Subsidiary is an Exempt Person
- Neither the Parent Company nor the Subsidiary is a Qualifying Free Zone Person.
- The Parent Company and the Subsidiary have the same Financial Year.
- Both the Parent Company and the Subsidiary prepare their financial statements using the same accounting standards.
Tax Gian can Advise you on UAE Corporate Tax Group Formation.
Based on the pros and cons listed in this blog, companies must evaluate their situation and arrive at a calculated decision on whether to form a corporate tax group in the UAE. Also, businesses need to examine whether all the corporate tax grouping conditions are met. These evaluations can be complex for business owners as they lack the necessary knowledge of UAE Corporate Tax Law and allied regulations. This is where corporate tax consultants in Dubai, such as Tax Gian, come in handy for taxable persons.
Tax Gian is a division of Jitendra Tax Consultants (JTC), which provides bespoke corporate tax consulting services in Dubai, UAE. JTC, a part of Jitendra Chartered Accountants (JCA), was established in 2001 and is a registered tax agent in the UAE. Our two decades of experience in the UAE will come in handy for organizations to navigate through the country’s complex tax regime. Tax Gian can provide reliable tax agency services in Dubai and represent your company for tax-related concerns before the FTA. We provide tax agent services in Dubai and all other emirates such as Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, Fujairah & Umm Al Quwain to registered taxpayers.