Maximizing Benefits: Corporate Tax Grouping Explained

Corporate tax compliance can be challenging for UAE companies that operate in groups. Such corporate groups often involve a parent company and its subsidiaries or branches structure. Paying tax for each member of the corporate group and filing tax returns separately for each entity can increase corporate tax compliance costs.

However, companies can optimize their tax obligations by forming a corporate tax group in the UAE. In this blog, we will explain what a corporate tax group is, explore its pros and cons, and discuss other implications for the UAE businesses:

What is a corporate tax group?

Corporate tax grouping is a provision in the UAE corporate tax law that allows two or more corporate entities to be treated as a single taxable person. Businesses need to meet certain conditions to form a corporate tax group and enjoy its unprecedented benefits. UAE companies can learn about tax grouping rules by consulting with corporate tax consultants.

What are the conditions for forming a corporate tax group?

A parent company and its subsidiaries can set up a corporate tax group by meeting all of the following conditions:

• The parent company and its subsidiaries must be resident juridical persons
• The parent company must own directly or indirectly at least: (95% of the share capital of each Subsidiary; 95% of the voting rights of each Subsidiary and 95% of each Subsidiary’s profits and net assets)
• The parent company and its subsidiaries should not be Exempt persons
• None of the entities in the corporate tax group should be ‘Qualifying Free Zone Persons”
• The parent company and each subsidiary should have the same Financial Year if not, align their tax periods by making an application to the FTA and comply with certain conditions (Our corporate tax consultants can assist you with this)
• The parent company and each subsidiary should use the same accounting method to prepare the financial statements

Benefits of Corporate Tax Grouping

A corporate tax group is entitled to exclusive benefits such as:

• Need to file only one corporate tax registration for tax group (each member of Tax group is required to get registered and have TRN to form a Tax group)
• A single tax return needs to be filed for the whole group
• Transfer pricing compliance is reduced
• One entity’s loss can be set off in the same year with another company
• No requirement to prepare and maintain separate audited financial statements of the Parent Company and each Subsidiary, even when a member’s revenue exceeds AED 50 million.
• Reduced compliance burden and cost

Drawbacks of Corporate Tax Grouping

Corporate tax grouping drawbacks include:

• Single exemption limit irrespective of tax group members
• Mandatory to prepare consolidated financial statements
• Triggers joint as well as several liabilities
• Limited to parent-subsidiary relationships, resident and taxable persons

Taxable income of the Corporate Tax Group

Since a tax Group is treated as a single Taxable Person, the group has a combined taxable income reported by the parent company.

The parent company is required to calculate the taxable income after consolidating the financial results, assets and liabilities with subsidiaries. It must also eliminate 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 needs to calculate the taxable income attributable to one or more of its members in the following situations:

• A member has unutilised pre-Grouping Tax Losses
• A member has earned income that is subject to Foreign Tax Credit
• A member benefits from any Corporate Tax incentives
• A member has unutilised carried forward pre-Grouping Net Interest Expenditure

Corporate Tax Consultants for UAE Tax Grouping

UAE corporate tax grouping can be challenging for business entities. You need to determine whether you are eligible for grouping and analyze whether such a grouping is beneficial for your business. Businesses in the UAE can consult with corporate tax consultants such as Tax Gian for conducting such assessments.

Tax Gian is a brand of Jitendra Tax Consultants (JTC) with more than two decades of experience in the UAE. We are registered tax agents in the UAE and our client base covers all sectors and industries. Our tax consultants have a good rapport with the government and tax authorities in the UAE. Our team of tax consultants works dedicatedly for our UAE clients.