Filing taxes can get complicated when multiple companies are involved. Each has to handle its own tax returns, manage profits and losses separately, and go through the same reporting process over and over. This creates confusion, duplication of effort, and higher costs.
A corporate tax group offers a way out. It allows related companies to act as one for tax purposes. Instead of filing separate returns, they file one. It makes tax work easier, cuts down paperwork, helps the business save money and assists with transfer pricing requirements.
Never heard about tax group formation? Let Tax Gian, a top corporate tax agent in the UAE, help you understand.
What Is a Corporate Tax Group?
A corporate tax group is formed when two or more companies are treated as one for tax purposes. This means that the whole group acts as a single taxpayer, and only the parent company submits a tax return. The concept is designed to simplify tax processes for businesses with several related companies.
In the UAE, only resident companies (companies who reside or based in UAE) can form such a group. The setup must be approved by the Federal Tax Authority (FTA) through a proper application, and certain conditions must be met. Corporate tax agents in the UAE can give you better insights on the subject of tax groups.
Who Is Eligible to Create a Tax Group?
Not every business is eligible to join a tax group. There are a few conditions to be met:
- A Parent-Subsidiary Partnership
At least 95% of each subsidiary’s shares, voting rights, and profit-sharing rights must belong to the parent firm. Direct ownership or ownership through other group companies is both possible.
- Exclusively Resident Companies
Every company in the group needs to be based in the United Arab Emirates. Companies that are non-resident or foreign are not permitted to join.
- Same financial year
Each business in the group is required to use the same year for financial reporting. This aids in maintaining consistency in reports.
- Identical accounting standards
The same accounting techniques, often based on International Financial Reporting Standards (IFRS), should be used by the companies to prepare their financial statements.
- Exclusions Apply
Certain entities are not allowed to join. These include exempt companies and those operating in Free Zones that enjoy a 0% tax rate (unless they choose to pay 9%).
Still uncertain about the eligibility criteria? Consult corporate tax agents in the UAE.
Steps to Form a Corporate Tax Group
It’s not always easy to form a group. Appropriate planning and approval are necessary. This is how it operates:
- Collect Documents
Create an ownership chart, trade licenses, financial records, and a signed contract between the businesses.
- Apply to the FTA.
The application is submitted electronically by the parent firm to the FTA. During the screening process, further documentation might be needed.
- Receive Approval and Tax Number
If the FTA approves, the group is registered and given a Tax Identification Number (TIN). The parent company becomes responsible for all tax-related matters for the group.
Above are only general steps; individual experiences can differ. Keeping a corporate tax agent in Dubai by your side is highly recommended.
What Happens After Approval?
Once approved, the tax group starts operating as one unit. Here’s what changes:
- One Tax Return
The parent company files a single tax return for the whole group. This saves time and effort. - Intragroup Deals Ignored
Transactions between group companies, like selling goods to each other, are usually ignored for tax purposes. This removes the need to track and report those deals. - Losses Offset Profits
If one company in the group makes a loss, that loss can reduce the taxable profits of another company. This helps lower the total tax bill.
Responsibilities of the Parent Company
Once a group is formed, the parent company has extra duties:
- Handle all tax filings for the group.
- Keep records and financial statements.
- Respond to any tax authority questions.
- Make sure every company in the group still meets the required rules.
Additionally, all members of the group share the tax responsibility. If one company fails to pay, the others may have to cover the amount.
Can Companies Join or Leave Later?
Yes, the group setup is flexible. New companies can be added by sending another request to the FTA. If a company no longer meets the rules or the group structure changes, it can be removed. The FTA also has the right to dissolve the group or change the parent company if needed.
What If the Group Ends?
In the case that the tax group ends, each company has to register as a separate taxpayer again. They have to file individual tax returns. They also have to manage their own records going forward.
Still more questions arising in your mind? Ask our expert corporate tax agents in Dubai at Tax Gian.
How can Tax Gian Assist?
It’s definitely a smart move for businesses with multiple companies to form a corporate tax group. It minimises the taxes and guarantees smooth compliance. But it also comes with duties that need to be fulfilled, procedures that need to be done and rules that must be followed. Tax Gian will not leave you on your own and can be your partner in doing all of this. From the decision to transform into a tax group to the day to get set and go as a tax group, Tax Gian will stay hand in hand with you.
