UAE Corporate Tax Registration Planning: Key Considerations for Tax Groups
The Federal Tax Authority (FTA) has announced the timeline for corporate tax registration in the UAE. However, corporate tax consultants in Dubai advise businesses not to rush for registration without adequate planning.
There are many factors to consider before applying for corporate tax registration in the UAE and the biggest of them would be whether to register as a tax group or a single taxable entity.
If your company’s structure is more suited for forming a tax group, you should register for corporate tax in the UAE as a tax group. In doing so, you may enjoy several tax benefits and tax savings. This blog discusses the key aspects of corporate tax planning in the UAE from the perspective of a tax group:
What is a Tax Group under UAE Corporate Tax?
Two or more taxable entities can form a tax group and register for the UAE corporate tax as a single taxable person. Only Resident Persons can be part of a UAE Tax Group formed for the purpose of corporate tax. The UAE corporate tax law sets out several conditions to form a tax group and these regulations govern the eligibility criteria to establish a tax group.
Conditions to form a Tax Group
Your corporate tax planning process in the UAE must start with the analysis of the eligibility conditions stipulated in the corporate tax law. Corporate tax advisers in Dubai can help you analyse your eligibility to form a tax group.
A parent company and its subsidiaries can form a corporate tax group in the UAE if they meet certain conditions. The conditions to form a tax group for the purpose of corporate tax are listed below:
- The parent company and its subsidiaries must be juridical persons and not individuals (natural persons)
- The parent entity and its subsidiaries must be Resident Persons
- The parent entity must be owning no less than 95% share capital, voting rights and profits & net assets of each Subsidiary, either directly or indirectly
- Neither the Parent Company nor the Subsidiaries are an Exempt Person
- Neither the Parent Company nor the Subsidiaries are a Qualifying Free Zone Person
- The Parent Company and each Subsidiary must have the same Financial Year
- The Parent entity and each Subsidiary must prepare their Financial Statements using the same Accounting Standards
Advantages of Starting a Corporate Tax Group in UAE
Your strategy for corporate tax planning in the UAE should include the various benefits of setting up a tax group. You must think about setting up a corporate tax group in the UAE if it helps you avail of tax savings and reduction of compliance & administrative burden.
Some of the benefits of setting up a corporate tax group in the UAE are listed below:
Simplification of compliance burden
A tax group will be treated as a single taxable person, requiring to file a single tax return for all the group members. This significantly reduces compliance burden and saves time and resources.
Cost-savings
The simplification of compliance burden leads to a significant reduction of costs for the group members. You can avoid paying separate tax return filing charges for each member of the group.
Offset the Tax Losses
The UAE corporate tax law allows the corporate tax group to offset the tax losses of one or more member entities with taxable profits of one or more member entities.
No Transfer Pricing
In a tax group, the parent entity needs to consolidate the financial statements of the tax group by eliminating transactions between the inter-group member companies. This will minimise the administrative burden of keeping up to date with transfer pricing documentation.
Cons of a Corporate Tax Group
You must opt for starting a UAE corporate tax group, if the advantages outweigh the disadvantages. Corporate tax consultants in Dubai can walk you through both the pros and cons of a tax group. We have listed here some of the disadvantages of setting up a corporate tax group in the UAE:
The 0% rate applies to the Tax Group as a whole: The 0% threshold of AED 375,000 applies to the Tax Group as a single taxpayer, irrespective of the number of entities that are part of it.
Triggers joint as well as several liabilities: The members of the corporate tax group will be jointly and severally liable for any corporate tax liability incurred by the group.
Complications during M & A Activity: Joining or leaving the tax group may trigger complications during mergers and acquisitions (M&A) activities.
Limited Flexibility: Approval from the FTA is mandatory to exit the group. Once formed, the group can be dissolved only under certain circumstances.
The Best Corporate Tax Advisers in Dubai can Guide You
The announcement of corporate tax registration deadlines in the UAE has prompted the businesses to accelerate their tax planning strategies. The factors listed in the blog might help the businesses that are yet to decide whether to register as an unincorporated tax entity as a single entity or as a Tax Group. Corporate tax advisers in Dubai such as Tax Gian advise you to carefully analyse each factor and take the most appropriate decision.
Tax Gian, a brand of Jitendra Tax Consultants (JTC), can further guide you. Tax Gian is one of the leading providers of Tax Consultancy Services in Dubai, boasting a highly qualified team of tax experts. TAX GIAN, under the umbrella of Jitendra Chartered Accountants (JCA), has more than 20 years of experience in serving the requirements of businesses in the UAE.
