The UAE corporate tax will be applied to the taxable income of taxable persons which includes corporate entities, and individuals engaging in economic activities such as business, commerce, or any other. UAE groups can apply for group relief for losses, intra-group transactions, and reorganizations. Thus, it is advisable for taxable persons to seek the services of UAE tax consultants to seamlessly implement corporate tax and to combat any tax intricacies.

The Purview of Group Relief under Corporate Tax UAE:

As per Article 26 of the UAE Corporate law, different reliefs are granted to the business. Specified taxable resident persons may qualify for small business relief, as mentioned in Article 27 of the newly enacted corporate tax law. In case of any loss in business, one could take relief in paying taxes decided by the cabinet.

Formation of Tax Groups:

Tax groups are formed under some conditions and prerequisites. Multinational corporations may form tax groups to utilize benefits granted under UAE Corporate Law for business activities in a specific structure i.e. a parent company with a number of sub-companies. To limit liabilities, companies create tax pools, which lowers the cost of their overall tax compliance.

It would be for the same financial year while preparing financial reporting under the same principles and standards.
Neither tax-exempt entity can be added to the tax group nor any free zone-qualifying person
Tax Group income is subject to corporate tax
having a uniform fiscal year.
A parent company must own at least 95% of the voting shares and share capital of a subsidiary.
Companies are able to organize into tax groups, particularly when they all have UAE residency.
A tax group may include a tax-exempt individual or a free-zone corporation that benefits from the 0% corporate tax rate.

Criteria for Forming Tax Groups: -

Companies liable to pay UAE corporate income tax must check whether they are eligible to form a tax group. Taxable persons must adhere to the conditions established by the United Arab Emirates Ministry of Finance in order to establish a corporate tax pool.

For calculating the payable income of a tax group, an official company is required to prepare a joint financial account, taking into account any subsidiary that is a participant of the tax group for the relevant tax period. The transactions between the subsidiary and principal company are not added while calculating the payable corporate tax income of the tax group.

Read More: What is Tax Grouping? Will Your Business be Grouped for VAT in UAE?

The Responsibilities of the Parent Company

A subsidiary may join a tax group if the parent company indirectly owns it and other subsidiaries hold at least 95% of the shares in question, or if the subject subsidiary is the parent business or one of its subsidiaries with a branch in the United Arab Emirates. If certain conditions are met. For the group Corporate Tax, each subsidiary and the parent company have common and multiple responsibilities. However, the obligation can only be imposed on one or more members with the consent of the FTA. The parent company will consolidate the financial accounts of each subsidiary of the fiscal group.

Loss Carried Forward

Subject to a number of requirements being met, the UAE Corporate Tax framework may permit the transfer of tax losses from one group company to another group company with earnings for business combinations that fall short of the requisite 95% joint ownership threshold or are not meant to establish a tax group. UAE Group enterprises must have at least 75% joint ownership.

Requirements:

UAE Group companies are at least 75% jointly owned.
Transfers of losses from businesses that are immune to losses or have access to the 0% Free Zone Corporate Tax are not permitted.
The total amount of tax losses that may be relieved may not be more than 75% of the entity receiving the transferred losses' taxable income for the applicable period.
Under certain conditions, balance sheet loss carryforwards can be carried forward indefinitely.

Liabilities and Assets Within Group Transfers: -

Transfers of assets and liabilities within the group are exempt from the Corporate Tax requirement as in cases held for at least three years from the date of transfer and involve UAE resident group entities that share an interest of at least 75%. When an inter-group relief is requested, the related assets and liabilities are recorded as transferred at their net tax carrying amount, thereby avoiding the transferring company and transferee having to bear the gain or loss in calculating their respective tax liability.

The transferor must calculate and include any gain or loss that would have been recognized in the initial transfer but was not because the conditions for a group tax deduction no longer applied in their tax return for the tax period in which the circumstances formally ended.

Restructuring aid

To support corporate activities i.e. mergers, and spin-offs, the UAE's Corporate Tax system would exclude or provide for tax deferral when an entire company or certain parts of a company are transferred in exchange for shares or other ownership interest.
The individual is exempt from the Corporate Tax regarding all benefits of the transfer. The absorbing company can use the transferor's current tax base on the transferred assets and liabilities.

Assets and liabilities transferred in a qualifying reorganization are deemed to be transferred at their net taxable carrying amount to avoid recognizing a gain or loss for the purpose of calculating taxable income. Any restructuring relief is "recovered" if the business is later sold to a third party.

Seek the Expert Services of UAE Tax Consultants

Essentially, taxable persons ought to seek the services of UAE tax consultants to seamlessly implement tax standards and to stay compliant with the Federal Tax Authority’s regulations to which noncompliance accrues hefty fines. Thus, contact us today and we shall be glad to assist you.

Read More: Which Entities are not Subject to UAE Corporate Tax?