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

The UAE Corporate Tax Regime, effective from June 2023, permits companies to form tax groups. The Public Consultation Document for the Corporate Tax Law released by UAE Ministry of Finance (MoF) prescribes rules for forming a tax group by a group of companies. The prime objective behind introducing separate rules for group of companies is to reduce the overall tax compliance cost. When implemented these rules allow full consolidation (grouping) for tax purposes and transfer of losses between companies for wholly owned group of companies.

Here are the key aspects of forming a tax group under the corporate tax in the UAE.

Formation of tax group

In order to form a tax group, a notice signed by the parent company and all subsidiaries will need to be submitted to the Federal Tax Authority (FTA). Additional subsidiaries can join an existing tax group by following the same process.

Conditions to be met for formation of tax group

A UAE resident group of companies can elect to form a tax group and be treated as a single taxable person if the following conditions are met:

  • The parent company must hold at least 95% of the share capital and voting rights of its subsidiaries.
  • All the group members must be residents of the UAE.
  • The parent company or its subsidiaries should not be an exempted person or a free zone entity that is taxed at 0% corporate tax rate.
  • A subsidiary can become a part of a tax group if it is owned indirectly by the parent company and other subsidiaries own at least 95% of its shares.
  • A subsidiary can also be a part of the tax group if it is a UAE branch of the parent company or one of its subsidiaries.
  • All the members of the tax group should use the same financial year.

If the conditions are fulfilled, the holding company and the subsidiary must sign a form and submit it to FTA indicating their formation as a tax group for availing the benefit.

The effects of tax group formation

  • The tax group is treated as a single taxable person.
  • The parent company will be responsible for the administration and payment of CT on behalf of the tax group, after consolidating the financials of the group for the relevant tax period. Transactions must be eliminated between the parent company and amongst the subsidiary group members.
  • All the members of the tax group (including parent company) will be jointly and severally liable for the payable corporate tax. This liability can be limited to one or more named members of the group, with approval from FTA.

Conditions to transfer losses between Group companies

The group can take benefit to transfer losses between group companies. However, each entity must have separate registrations and file returns accordingly. For this case, the following conditions are to be sufficed:

  • 75% of the company must be commonly owned.
  • The company is not exempt from corporate tax.
  • The company is not a Freezone company with a 0% CT benefit.
  • The total loss that is offset will not be more than 75% of the taxable income of the company receiving the transfer.

For establishing a tax group under the UAE corporate tax, it is critical for businesses to carefully analyze their financial situation to assess if they meet the regulatory requirements and also determine it’s viability for all the group entities.

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