The UAE corporate tax law allows two or more taxable persons to form a tax group so that they can enjoy the benefit of being treated as a Single Taxable Person. Once the applicable conditions are met the parent company and its subsidiary entities can make a joint application to the Federal Tax Authority (FTA) to form a tax group or become a member of the UAE corporate tax group.
The conditions to form a UAE corporate tax group and other relevant aspects are explained in a recently released Corporate Tax Guide (CTGTGR1). Corporate groups readying to form a corporate tax group in the UAE are advised to go through the guide.
Corporate tax consultants in Dubai can help you interpret the provisions of the FTA Guide and make informed decisions. Let us explore the key highlights from the UAE Corporate Tax Guide on Tax Groups:
Conditions to form a UAE Corporate Tax Group
A parent company and its subsidiaries can set up a corporate tax group in the UAE by meeting the following conditions:
- The parent company and its subsidiaries wishing to join the Group must be juridical persons
- The parent company and each subsidiary should be Resident Persons as per the UAE Corporate Tax Law
- The Parent Company should own at least 95% of the share capital of each Subsidiary, either directly or indirectly through one or more Subsidiaries
- The Parent Company should have at least 95% of the voting rights of each Subsidiary, either directly or indirectly through one or more Subsidiaries
- The Parent Company must be entitled to at least 95% of each Subsidiary’s profits and net assets, either directly or indirectly through one or more Subsidiaries
- The parent company and each subsidiary should not fall under the category of Exempt Person
- The parent company and its subsidiaries should not be a Qualifying Free Zone Person
- The Parent Company and each Subsidiary must have the same Financial Year
- The Parent Company and each Subsidiary must prepare their Financial Statements using the same Accounting Standards
Procedure to Set up a Corporate Tax Group in UAE
The application for forming a UAE corporate tax group must be submitted to the FTA jointly by the parent company and its subsidiaries. The application should state the first intended tax period of the tax group. The FTA will approve the application after determining the applicant has met the conditions for setting up a corporate tax group in the UAE.
However, if the constituents of the group fail to continuously meet the conditions in the first Tax Period, then it will be treated as if no Tax Group had been formed from the beginning of that Tax Period, even if the FTA has approved the application. In addition, the FTA can reassess compliance with the conditions at any time. Corporate tax advisers in Dubai can help you file the application for tax group formation.
Tax Registration Number for UAE Tax Group
Once the FTA approves the application, the tax group will get a separate tax registration number (TRN). This TRN will be used for the Tax Group for Corporate Tax purposes.
Deregistration of UAE Corporate Tax Groups
A taxable must apply for tax deregistration in case of a cessation of its Business or Business Activity. In the case of a Tax Group, the cessation of business activity should be assessed at the level of the Tax Group as a whole.
If the business or business activity of a member ceases, the requirement to deregister the tax group doesn’t arise. Deregistration becomes mandatory only when the business or business activity of the Tax Group as a whole ceases to exist.
Determining the Taxable Income of a Tax Group
Since it is treated as a single Taxable Person, a UAE corporate tax group has a combined Taxable Income reported by the Parent Company. The parent company can calculate the taxable income after consolidating the financial results, assets and liabilities with all Subsidiaries and eliminating transactions between the Parent Company and any Subsidiary or between the Subsidiaries that are a member of the Tax Group.
Attribution of Taxable Income
A Tax Group must calculate the Taxable Income attributable to one or more of its members in the following circumstances:
- A member has unutilised pre-Grouping Tax Losses
- A member has earned income for which the Tax Group can claim a Foreign Tax Credit
- A member of the Tax Group benefits from any Corporate Tax incentives as specified in the Corporate Tax Law
- A member has unutilised carried forward pre-Grouping Net Interest Expenditure
Tax Losses Applicable to Tax Groups
A tax group can carry forward the tax losses of a tax period to subsequent Tax Periods. The tax losses that have been carried forward can be offset against the Taxable Income of subsequent Tax Periods. Corporate tax advisers in Dubai can advise businesses on tax losses.
Interest Deduction Limitation Rule
Net Interest Expenditure is the Interest expenditure amount in excess of the Interest income amount as determined in accordance with the provisions of the Corporate Tax Law. Hire the best corporate tax advisory services in Dubai for further advice on interest deduction limitation rules.
Impact of Tax Group on Foreign Tax Credit
Where a Taxable Person’s foreign source income is subject to UAE Corporate Tax, such Person can claim a Foreign Tax Credit by deducting taxes paid under the tax laws of a foreign jurisdiction from the Corporate Tax due in the UAE on the same income.
Foreign Permanent Establishment Exemption
A Taxable Person may elect to exclude the net income of its Foreign Permanent Establishments from its Taxable Income. In the case of a Tax Group, the Parent Company is responsible for making an election and if an election is made, it is applicable to all Foreign Permanent Establishments held by the Tax Group.
Tax Gian can Guide you on UAE Tax Group Formation
The FTA guide provides valuable insights into the nitty-gritty of the UAE corporate tax formation process. The best corporate tax consultants in Dubai such as Tax Gian can help you further with registering a tax group.
We can help advise you on your eligibility to set up a UAE corporate tax group and file the application with the FTA. Tax Gian’s tax experts in the UAE will assist you in all the key steps such as preparing and submitting the relevant documentation, obtaining the TRN, applying for deregistration when required etc.
Tax Gian is one of the top transfer pricing advisers in Dubai with years of experience. Since 2001, Jitendra Chartered Accountants, an associate of JTC, has been providing end-to-end corporate tax advisory services in Dubai. Call us today to ensure your entity is complying with the UAE corporate tax law.