The UAE corporate tax law allows two or more taxable persons to form a corporate tax group, which provides them the benefit of being treated as a single taxable person. The parent company can apply to the Federal Tax Authority (FTA) to form a corporate tax group in the UAE with one or more other Resident Persons, each referred to as a Subsidiary. The Corporate Tax Law stipulates conditions for forming a tax group for taxable persons.
However, Clause 2 of Article 40 of the UAE Corporate Tax Law says that subsidiaries of a government entity can form a corporate tax as per the conditions prescribed by the FTA. The FTA has recently issued Decision No. 12 of 2023, detailing the conditions to form a UAE corporate tax group by subsidiaries of a government entity.
This blog will help government entity subsidiaries understand the conditions for establishing a corporate tax group in the UAE. However, it is advisable to consult with corporate tax consultants in Dubai before making any tax-related decision. Read ahead to learn more:
Conditions for Govt Entity Subsidiaries to Form a Tax Group
Subsidiaries in which a Government Entity directly or indirectly owns at least 95% ownership interest as per the Corporate Tax Law may form a Tax Group, subject to the following conditions:
- Meet the conditions prescribed in Clause 1 of Article 40 of Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law)
- The Government Entity exempt as per the Corporate Tax Law is not a member of the Tax Group.
- A Subsidiary of a Government Entity is not a member of the Tax Group where such a Subsidiary is an exempt person.
- The Government Entity appoints one of the Subsidiaries as representative of the Tax Group
Conditions as per Clause 1, Article 40 of CT Law
The first condition of Decision No. 12 of 2023 says the taxable persons need to meet the conditions prescribed in Clause 1 of Article 40 of the UAE Corporate Tax Law. The conditions are listed below:
- The Resident Persons must be juridical persons
- The Parent Company owns at least 95% of the share capital of the Subsidiary, either directly or indirectly through one or more Subsidiaries
- The Parent Company holds at least 95% (ninety-five per cent) of the voting rights in the Subsidiary, either directly or indirectly through one or more Subsidiaries
- The Parent Company must be entitled to at least 95% of the Subsidiary’s profits and net assets, either directly or indirectly through one or more Subsidiaries
- Neither the Parent Company nor the Subsidiary is an Exempt Person
- Neither the Parent Company nor the Subsidiary is a Qualifying Free Zone Person
- The Parent Company and the Subsidiary have the same Financial Year
- Both the Parent Company and the Subsidiary prepare their financial statements using the same accounting standards
Who can apply for the tax group formation?
The decision says the Subsidiary appointed as representative of the Tax Group is responsible for submitting an application to the FTA to form the Corporate Tax Group in the UAE. Corporate tax advisers in Dubai can help you submit the application to the FTA.
When will the new Decision take effect?
The Decision says it will come into effect on the date it was published in the Official Gazette. Since the Decision was published on 16th August 2023, it has already become effective in the UAE. Corporate tax experts in Dubai can help you make any decision based on the Decision.
Pros of Starting a Corporate Tax Group
Creating a UAE corporate tax group offers multiple benefits for taxable persons. The following are some of the important benefits of establishing a corporate tax group in the UAE:
- Only a single registration is required
- Only a single filing is necessary
- Arm’s length principles and Transfer Pricing Documentation requirements do not apply
- Losses of one company set off in the same year with another company leading to cash benefits
- Lower compliance burden due to single Corporate Tax return in the UAE
Speak with the Best Corporate Tax Advisers in Dubai, UAE
Even though establishing a corporate tax group in the UAE is highly beneficial for companies, the process and requirements can be tough. It requires a deeper understanding of the laws and regulations to navigate the complex maze of corporate tax in the UAE. However, the best corporate tax consultants in Dubai such as Tax Gian can simplify the process.
Tax Gian is a flagship brand of Jitendra Tax Consultants (JTC), a leading provider of corporate tax services in Dubai, UAE. We have a team of highly qualified tax experts who can guide businesses on all aspects of the UAE corporate tax law including tax registration, formation of tax groups, transfer pricing etc. Call us today to avail yourself of comprehensive corporate tax advisory services in Dubai, UAE.