Key Aspects of Corporate Tax Group Formation under UAE's Corporate Tax Regime

The implementation of the UAE's Corporate Tax regime introduced a significant concept for business groups: Tax Groups. These groups allow eligible companies to function as a single taxable entity, streamlining administration and potentially optimizing tax liabilities. But navigating the formation and operation of a UAE Corporate Tax Group can be complex. This guide dives deep into the key aspects you need to understand.

The UAE introduced a corporate tax regime in June 2023, and it offers a unique benefit for groups of companies: the ability to form tax groups.  This page explores the key features and advantages of this system, aiming to simplify corporate tax compliance for businesses in the UAE.

What are Tax Groups?

Tax groups allow a group of companies under common ownership to be treated as a single taxable entity for UAE corporate tax purposes. This simplifies compliance by consolidating the financial statements of the group and enabling the parent company to manage the tax affairs for the entire group.

How to Form a Tax Group?

The Ministry of Finance (MoF) has outlined the process for forming a tax group. Here are the key steps:

Eligibility Requirements:

•  The parent company must hold at least 95% ownership and voting rights in its subsidiaries.
•  All companies in the group must be UAE residents and subject to corporate tax (not exempt or in a 0% tax free zone).
• All members must share the same financial year.

Submission of Notice:

• A signed notice by the parent company and all subsidiaries needs to be filed with the Federal Tax Authority (FTA).
• Additional subsidiaries can join an existing group by following the same process.

Benefits of Tax Groups

• Reduced Compliance Costs: Consolidated financial statements and centralized tax administration by the parent company streamline compliance for the entire group.
• Transfer of Losses: Tax losses from one company within the group can be offset against the profits of another, optimizing the group's overall tax liability. However, specific conditions apply to loss transfer.

Conditions for Transferring Losses

• The receiving company must be at least 75% owned by the group.
• The receiving company must not be exempt from corporate tax or located in a 0% tax free zone.
• The transferred loss cannot exceed 75% of the receiving company's taxable income.

The UAE's corporate tax regime offers tax groups as a valuable tool for simplifying compliance and optimizing tax liabilities for businesses operating under common ownership. By understanding the eligibility requirements, formation process, and benefits, companies can leverage this option to streamline their tax obligations in the UAE.

UAE Corporate Tax Group Liability: Sharing the Burden

The concept of joint and several liability for corporate tax within a Tax Group can seem daunting. Let's explore the implications:

• Shared Responsibility: All members of the Tax Group are legally responsible for ensuring the group's corporate tax obligations are met. This means that if the parent company fails to pay the tax due, the FTA can pursue any member of the group to recover the dues.
• Limited Liability Option: While the default is joint and several liability, groups can apply to the FTA to limit liability to specific members. This offers greater financial control but requires FTA approval based on a strong justification.
• Impact of Group Restructuring: If a member leaves the Tax Group, they may still be liable for the group's tax obligations for the period they were a member. Careful planning and clear exit agreements are crucial to manage this aspect.

How can Reyson Badger assist you with Corporate Tax Group Formation?

Forming a Corporate Tax Group in the UAE presents a strategic opportunity for eligible business groups. It can streamline tax administration, potentially optimize tax liabilities, and enhance group financial management. However, careful consideration of the eligibility criteria, operational changes, and potential liability implications is essential. Consulting with tax advisors experienced in the UAE's Corporate Tax regime is highly recommended to ensure a smooth and successful group formation process. Reyson Badger assists companies in forming groups for Corporate Tax purposes in the UAE.

By understanding these key aspects, you can make informed decisions about whether forming a Corporate Tax Group aligns with your business strategy and maximizes the benefits offered by the UAE's corporate tax framework.