Tax Group for UAE Corporate Tax
The United Arab Emirates is bringing changes to its business rules with the start of Federal Corporate Tax. From June 1, 2023, the government will tax company profits at a 9% rate. The new system wants to help the UAE match global tax standards and move beyond depending only on oil and gas for income. Every company with more than one branch or several subsidiaries should understand how tax groups work in the UAE. This guide explains the requirements and advantages of forming tax groups in the country.
What is a Tax Group?
A tax group means a parent company and its subsidiaries join together to file taxes as one single entity. The group files just one tax return for the whole group instead of each company filing separately. The group must keep consolidated financial statements and records for tax and reporting purposes. When a business forms a tax group, it helps with easier tax filings and sometimes allows companies to use tax losses across the group.
Key points about a tax group:
- The parent company leads the group.
- Subsidiary companies are added under the parent.
- They prepare one set of consolidated statements for taxes.
- The whole group is treated as one taxpayer for corporate tax.
Main Provisions for Tax Groups Under UAE CT Law
The UAE has created new rules to make tax laws simpler and fair for everyone. These rules give companies the choice to form tax groups for paying corporate tax. When businesses set up a tax group, it can help with:
- Using tax losses from one company to reduce group tax.
- Ignoring taxes on transactions within the group.
- Making big reorganizations easier with less tax impact.
Who Can Form a Tax Group?
Not every company can join or create a tax group. The UAE Ministry of Finance has set certain rules:
- The parent company must control at least 95% of the voting rights and share capital in the subsidiaries.
- The parent company must own at least 95% of each subsidiary’s profits and net assets.
- All members must be registered in the UAE. No foreign company can join unless it is managed and owned in UAE and is treated as a UAE entity.
- Every company in the group must use the same financial year and accounting standards.
- The parent company is responsible for tax filings and payments of the group.
Example:
If “Parent Company A” owns 95% of “Subsidiary B” and 100% of “Subsidiary C,” then Parent A, B, and C can form a tax group. All must have the same financial year and use the same accounting rules.
Calculating Taxable Income for a Tax Group
The parent company must put together all the financial results, assets, and liabilities of every subsidiary for the tax year. Transactions between group companies are ignored when calculating the taxable income.
- If a subsidiary joins with tax losses, these are called “pre-grouping tax losses.”
- These losses can be used only against the income of the subsidiary that brought them into the group.
- If a subsidiary leaves, the group keeps its own tax losses but loses any unused “pre-grouping losses” of the leaving company.
Example:
Suppose XYZ Company joins a tax group with AED 50,000 in tax losses. These losses can lower group taxable income, but only for XYZ’s part.
Ending or Changing a Tax Group
A tax group might end or change in several ways:
- By Application: The parent company can ask the Federal Tax Authority (FTA) to end the group.
- Not Meeting Conditions: If the parent or subsidiaries no longer meet group rules, the FTA can dissolve the group.
- Changing Parent Company: If the parent company is replaced, the FTA may allow a new parent to take over.
After forming a tax group, the parent company handles all tax calculations, payments, and administration for the group.
Key Insights About Tax Groups in the UAE
- Members don’t need to follow transfer pricing rules for internal group dealings unless calculating standalone income for special reasons.
- Group financial statements don’t need to be audited unless the Ministry says so.
- No foreign company can join unless it’s owned and managed as a UAE company.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing helps businesses understand tax groups and handle compliance in the UAE. Our team can review your structure, help you with setting up or ending a tax group, and prepare consolidated financial records for the FTA. We make sure you don’t miss a beat—after all, a stitch in time saves nine!
- For more information, visit our office:
- Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
