According to the terms of Article 40 of the Corporate Tax Law, a Tax Group is defined as two or more Taxable Persons regarded as a single Taxable Person. A tax group can only consist of residents. A tax group for VAT purposes is not the same as a tax group for corporate tax reasons. This article will discuss:
Why should I make a Corporate Tax Group in UAE:
There are numerous benefits of creating a Corporate Tax Group in UAE, which include:
| 1 | The parent company’s capacity to submit a single tax return on behalf of the whole tax group. |
| 2 | Establishing a Tax Group also makes it possible for the members’ earnings and losses to be offset against one another. |
| 3 | When calculating the Taxable Income of the Tax Group, the transfer of assets and liabilities as well as any agreements and transactions between members must be ignored. |
Conditions to form a Corporate Tax Group:
The conditions to form a CT Group in UAE are (warning; lots of reading):
| – | Each subsidiary and the parent company are separate legal entities |
| – | Each subsidiary and the parent company are considered resident persons |
| – | At least 95% of each subsidiary’s share capital is owned by the parent company, either directly or indirectly through one or more subsidiaries. |
| – | At least 95% of each subsidiary’s voting rights are owned by the parent company, either directly or indirectly through one or more subsidiaries. |
| – | Whether directly or indirectly through one or more subsidiaries, the parent company is entitled to at least 95% of each subsidiary’s net assets and income. |
| – | The parent company and its subsidiaries are not exempt entities. |
| – | The Parent Company is not a Qualifying Free Zone Person, nor are its subsidiaries. |
| – | Every subsidiary and the parent company must be in the same fiscal year. |
| – | Every subsidiary and the parent company are required to use the same accounting standards when preparing their financial statements. |
This is the summarised form of all of the requirements needed for creating a Corporate Tax Group.
How to calculate taxable income of a CT Group?
By combining all of its subsidiaries’ financial performance, assets, and liabilities, the parent company will calculate its taxable income. Transactions between the Tax Group’s subsidiaries or between the Parent Company and any subsidiaries shall be terminated. If a member realised a deductible loss in a Tax Period related to such transactions prior to joining or creating the Tax Group, then this rule is exempt.
Other things to consider are:
| – | Under the UAE CT Law, non-capital expenses that are incurred solely and exclusively for the Taxable Person’s business are deducted. Since expenses are to be evaluated based on the whole Tax Group, they are deductible in the case of a Tax Group even if they are paid for the business or businesses of other members of the Tax Group solely. |
| – | If a Taxable Person does not have an election for Qualifying Group Relief, it is considered to have made one if it creates a Tax Group or joins one that has at least one member who has. |
| – | In order for a Taxable Person to carry over and use tax losses, ownership and business continuity requirements must be satisfied. Only the ownership stake in the parent company matters in the case of the Tax Group; the business activities of the Tax Group as a whole should be used to assess business continuity. |
| – | Unless there are special circumstances or the FTA gives its consent, the decision to record profits or losses on a realisation basis is considered irrevocable. |
| – | The Tax Group may choose to implement transitional regulations, which will remain in effect for any members of the Tax Group after they leave the group or in the event that the Tax Group dissolves. The transitional relief previously provided by the member shall be applicable with regard to such assets and liabilities in the event that a Taxable Person joins a Tax Group after the first Tax Period. |
| – | Even in cases where transactions between members of the Tax Group have been terminated due to consolidation, they must still be judged in accordance with the arm’s length standard. |
| – | Small business relief is not applicable to individuals who are members of a tax group and are qualified for it on an individual basis. |
