The United Arab Emirates (UAE) introduced a new Corporate Tax (CT) system on June 1, 2023, under Federal Decree-Law No. 47 of 2022. This law reshaped the financial landscape and gave rise to a strategic opportunity for companies — the Corporate Tax Group.
The idea behind forming a tax group is simple yet powerful. It allows businesses under common ownership to operate as a single taxable entity. This simplifies compliance, reduces administrative workload, and can help optimize tax liabilities. However, understanding and forming a Corporate Tax Group correctly requires careful attention to UAE tax laws and expert guidance from professionals like Mubarak Al Ketbi (MAK) Auditing.
This guide explains everything you need to know about forming and managing a Corporate Tax Group in the UAE.
What Is a Tax Group in the UAE?
A Tax Group is when two or more companies under the same ownership act as one taxable entity for corporate tax purposes. Instead of each company filing separate tax returns, the parent company files a single consolidated return for the entire group.
This system makes compliance easier and saves time. It also ensures that losses from one company can be used to offset profits from another, reducing the overall tax burden.
In simple terms, a Tax Group helps companies work as one family for taxation. The Federal Tax Authority (FTA) supervises this structure to ensure all group members meet the eligibility and reporting standards.
Who Can Form a Tax Group in the UAE?
Not every business can form a tax group. The Corporate Tax Law sets out specific conditions that all companies must meet before applying to the FTA:
- Legal Entity Condition: All group members must be juridical persons such as companies or partnerships. Natural persons are not eligible.
- Resident Requirement: Each member must be a UAE tax resident.
- Ownership Condition: The parent company must own at least 95% of the shares, voting rights, and profit rights of its subsidiaries.
- Financial Year Alignment: All companies must share the same financial year and follow identical accounting standards (IFRS).
- Continuous Compliance: Every company must maintain eligibility throughout its membership in the group.
Once all these conditions are met, the group can apply for FTA approval.
Conditions for Forming a UAE Tax Group
The process to create a tax group depends on several legal and operational requirements. Here are the main ones:
- Legal Framework: The parent and subsidiaries must be legal business entities registered in the UAE.
- Resident Person Clause: Both parent and subsidiaries must qualify as resident persons under UAE law.
- Ownership and Control: The parent company must control at least 95% of share capital and voting rights.
- Exempt Entity Rules: Exempt businesses or Free Zone entities can join only if they meet all other legal conditions.
- Consistent Reporting: All members should follow the same accounting standards and fiscal calendar.
Compliance with these conditions ensures smooth tax filing and minimizes disputes during audit checks.
Steps to Form a Corporate Tax Group in the UAE
Setting up a Corporate Tax Group involves a clear step-by-step process managed under the FTA’s supervision.
Step 1: Check Eligibility
Before applying, confirm that the Parent Company and Subsidiaries meet all conditions listed above.
Step 2: Apply Jointly to the FTA
The parent company and each subsidiary must jointly submit a written application to the Federal Tax Authority.
Step 3: Select Tax Period
Specify the first tax period for the group and indicate the effective date of formation.
Step 4: FTA Review
The FTA reviews the documents and ownership structure to verify compliance.
Step 5: Approval & Registration
If approved, the FTA issues a single Tax Registration Number (TRN) for the group while maintaining individual TRNs for each member.
Once registered, the group officially becomes a single taxable entity under UAE Corporate Tax Law.
Understanding UAE Corporate Tax Grouping
Under Article 40 of the Corporate Tax Law, grouping allows resident companies to combine financial results into one Corporate Tax Return.
Eligibility Highlights:
- The parent must hold at least 95% ownership and voting rights in subsidiaries.
- All entities must be UAE residents and non-exempt.
- All must share one financial year and accounting method.
Procedure:
- A signed notice must be submitted by both parent and subsidiaries to the FTA.
- New subsidiaries can be added later by following the same submission process.
This structure creates simplicity in compliance and uniformity in reporting, which reduces administrative costs.
Benefits of Forming a Tax Group
The UAE offers major benefits for businesses that qualify for group taxation.
- Lower Compliance Costs: One consolidated tax return replaces multiple filings.
- Loss Utilization: Losses from one company can offset profits of another within the group.
- Simplified Administration: The parent manages tax affairs for all members.
- Improved Cash Flow: Optimized tax reporting may reduce liabilities.
- Unified Control: The group operates under one leadership, ensuring accuracy and efficiency.
These benefits allow companies to focus on growth while staying tax-compliant.
Challenges in Managing a Tax Group
While tax grouping provides advantages, it also has a few challenges:
- Shared Liability: All members are responsible for paying the group’s total tax amount.
- Complex Accounting: Consolidated financial reporting can be time-consuming.
- Change Complications: Adding or removing a member requires FTA approval and may affect compliance.
To manage these challenges effectively, businesses should work with experienced tax professionals like Mubarak Al Ketbi (MAK) Auditing, who understand the UAE’s corporate tax system in depth.
Conditions for Loss Transfer
Loss transfer within a group can be a useful tax-saving tool. However, it must follow specific rules:
- The receiving company must be owned at least 75% by the group.
- The receiving company must not be exempt or located in a 0% tax zone.
- The transferred loss cannot exceed 75% of the receiver’s taxable income.
Loss transfers must be properly documented and disclosed in the group’s tax filings to ensure FTA approval.
Corporate Tax Group Liability in the UAE
Group taxation comes with shared responsibility.
- Joint Liability: All members are jointly liable for the tax obligations of the group.
- Limited Liability Option: The group may apply to the FTA to limit liability to specific members.
- Restructuring Impact: If a company exits the group, it may still remain liable for past tax obligations during its membership period.
This shared liability encourages accountability among group members and ensures fairness in compliance.
Compliance Responsibilities for Tax Groups
Once the Tax Group is established, certain responsibilities must be maintained:
- Consolidated Financial Statements: The parent company must prepare combined financials under IFRS or IFRS for SMEs.
- Tax Filing Deadline: A unified corporate tax return must be filed within 9 months of the tax year’s end.
- Payment & Refunds: The parent company handles all tax payments and refunds on behalf of the group.
- Record Keeping: All companies must maintain their financial and audit records for seven years.
Failure to comply with these obligations can lead to penalties, so careful monitoring is essential.
Tax Registration and Deregistration
Each company in the group, including the parent, must hold a valid Tax Registration Number (TRN).
If a member ceases business operations or exits the group, the parent company must notify the FTA and apply for deregistration. This keeps the group’s record accurate and up-to-date.
Adding or removing members requires a joint application by the parent and subsidiary to the FTA, ensuring all records remain synchronized.
Limitations and Considerations
While grouping offers flexibility, there are a few limitations:
- Loss Carryforward Limits: Losses may not always offset profits from other group members.
- Impact on Mergers: Group changes can complicate mergers or acquisitions.
- Higher Accounting Workload: Consolidated statements increase compliance costs.
- Foreign Entity Restriction: Only UAE tax residents qualify; foreign entities cannot join.
- Single Exemption Cap: The AED 375,000 exemption applies to the whole group, not each company.
These limitations should be reviewed with a qualified tax advisor before forming a group.
Advantages of a Corporate Tax Group in UAE
Forming a tax group provides several long-term benefits:
- Simplified Tax Filing: One consolidated return saves time and effort.
- Efficient Loss Offsetting: Profitable entities can use other members’ losses to minimize tax.
- Reduced Administration: One TRN and one return lower compliance workload.
- Improved Cash Flow: Offset-based taxation creates liquidity advantages.
- Simplified Internal Transactions: Transactions between members are excluded from transfer pricing, reducing complexity.
This system enhances overall financial control and fosters transparency across group operations.
How Mubarak Al Ketbi (MAK) Auditing Helps in Corporate Tax Group Formation
Forming a Corporate Tax Group is a strategic move, but it demands professional planning and compliance expertise.
Mubarak Al Ketbi (MAK) Auditing offers comprehensive services to help companies:
- Evaluate eligibility and ownership structure.
- Prepare consolidated financial statements under IFRS.
- Manage FTA applications and documentation.
- Guide businesses through ongoing compliance after approval.
- Ensure loss transfer and tax filing accuracy.
The firm’s specialists bring years of UAE tax experience to assist Free Zone, mainland, and SME companies in building effective group structures that save time and reduce tax liabilities.
What Can Help – Mubarak Al Ketbi (MAK) Auditing
Mubarak Al Ketbi (MAK) Auditing supports businesses at every step of their Corporate Tax Group Formation process. Our experts provide detailed consultation, ensure FTA compliance, and help you maintain financial transparency.
You Can Count on Us For:
- Professional Corporate Tax Group formation support.
- FTA representation and documentation assistance.
- Audit-ready financial preparation for groups.
- Strategic tax planning to reduce liabilities.
- Ongoing advisory for group compliance management.
Visit Our Office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
Contact / WhatsApp: +971 50 276 2132
