Forming tax group under UAE corporate tax

The UAE corporate Tax Regime which would come into effect from June 2023, announced the concept of the Tax Group. To form a tax group, a notice signed by the parent company and all subsidiaries will need to be submitted to the FTA. Additional subsidiaries can join an existing tax group by following the same process. Tax consultants in Dubai are committed to delivering and explaining the implications of the introduction of corporate tax on your business.

UAE VAT regulation

Let’s recapitulate the criteria to form a tax group as per UAE VAT regulations.

Each person shall have a place of establishment or fixed establishment in the states.

The relevant person shall be related parties. (For the purpose of UAE VAT, related parties refer to two or more persons who are not separated on the economic, financial, or regulatory level, where one can control others either by Law, shareholding, or voting rights.)

One or more people conducting business in a partnership and controlling the others can also form a Tax Group.

Thus, Tax group under UAE VAT Regulations gives more importance to the control aspect.

A UAE resident group of companies can elect to form a tax group and be treated as a single taxable person.

If the parent company holds at least 95% of the share capital and voting rights of its subsidiaries, to form a tax group. Discuss your tax-related policies where you can be guided by tax consultants in UAE.

Neither the parent company nor any of the subsidiaries can be an exempt person or a free zone person that benefits from the 0% CT rate, and all group members must use the same financial year.

A subsidiary can also be part of the tax group if it is owned indirectly by the parent company and other subsidiaries own at least 95% of its shares, or if it is a UAE branch of the parent company or one of its subsidiaries. 

Following is the effect of forming a Tax Group under UAE Corporate Tax Regime:

The Tax group is treated as a single taxable person.

The parent company is responsible for the administration and payment of CT on behalf of the tax group.

To determine the taxable income of the group, the parent company will have to consolidate the financial accounts of each subsidiary for the relevant tax period and eliminate transactions between the parent company and each subsidiary group member (and amongst the subsidiary group members).

For the period during which the entities are members of the tax group, the parent company and each subsidiary will be jointly and severally liable for the group’s CT.

This joint and several liabilities can be limited to one or more named members of the tax group, with approval from the FTA.

It is necessary that the business reviews its commercial and financial aspects to match the regulatory requirements and determine whether forming a tax group is beneficial or whether all group companies should adhere to the corporate tax independently that’s why tax consultancy in Dubai can update you on the key developments in the region which will help you to make decisions in your business.