Under corporate tax UAE, tax groups are formed by two or more taxable persons upon fulfillment of certain conditions to treat them as one taxable person for corporate tax purposes. Therefore, it is advisable for taxable persons to seek the services of Tax Consultants UAE to seamlessly form a tax group and to stay compliant with tax standards and regulations.
Conditions for Forming a Tax Group in UAE
Article 40 of the UAE Corporate Tax Law stipulates the conditions related to the formation of tax groups, whereas reference is made to a resident person of the parent company who applies for the tax group’s formation. The following are the conditions for the formation of tax groups:
- The resident persons shall be legal persons.
- The parent company owns directly or indirectly at least 95% of the capital of the subsidiary company through one or more subsidiary companies.
- The parent company shall have directly or indirectly at least 95% of the voting rights in the subsidiary company through one or more subsidiary companies.
- The parent company shall directly have the right to the profits and net assets of the subsidiary company by at least 95%, or indirectly through one or more subsidiary companies.
- Neither the parent company nor the subsidiary company is an exempt person.
- Neither the parent company nor the subsidiary company is a qualified existing person in the free zone.
- That the fiscal year be the same for the parent company and the subsidiary company.
- The accounting standards used in preparing the financial statements are the same for the parent company and the subsidiary company.
- Exceptions to tax groups related to the government entity.
The law stipulates that it is not possible to form a tax group in the case where the parent company or the subsidiary company is a person exempt from corporate tax. However, the statute excludes government agencies from this provision according to Article 40 of the corporate tax law, to form tax groups.
Obligations of the Parent Company in the Tax Group
- The parent company must comply with all obligations related to tax registration, tax return submission, and tax payment.
- The parent company and the subsidiaries or affiliates shall be jointly and severally liable for the corporate tax payable by the tax group for the tax periods in which they are members of this group.
- The aforementioned joint and symbiotic liability may be limited to one or more members of the tax group, based on the approval of the Authority.
Conditions Related to the Termination of an Existing Tax Group
This shall be under any of the following two cases:
- This must be based on a request to cancel a tax group submitted by the parent company and approved by the relevant Authority.
- In the event that the parent company no longer fulfills the conditions stipulated in the law regarding the formation of the tax group.
Read More: What is Tax Grouping? Will Your Business be Grouped for VAT in UAE?
Cases Related to the Replacement of the Parent Company in the Tax Group
This shall be effected according to a request submitted by the parent company to the Authority to replace it with another company without stopping the tax group in any of the following two cases:
- In the event that the new parent company fulfills all the conditions stipulated in the law regarding the formation of a tax group.
- In the event that the previous parent company has ceased to exist and the new parent company or subsidiary company is its legal successor in everything related to its rights and duties.
The Authority may also, in certain cases and at its discretion, dissolve the tax group or change its parent company, according to the information and data it has provided that the Authority notifies the tax group of such a procedure.
Tax Losses in Case the Tax Group Ends
All unused tax losses in the event of ending the tax group are allocated as follows:
- All tax losses remain with the parent company in the event that it continues as a taxable person.
- In the event that the parent company is no longer subject to tax, such tax losses may not be deducted from the subsidiary company's income that it achieved after the end of the tax group.
How to Calculate the Taxable Income for a Tax Group?
Calculation of taxable income shall be conducted according to consolidated financial statements prepared by the parent company so that these lists cover each subsidiary company that is a member of the group for the relevant tax period. Further, all transactions that take place between the parent company and any subsidiary company and transactions that take place between members of the group are excluded for the purposes of calculating taxable income for the tax group.
Seek the Expert Services of Tax Consultants UAE
Taxable persons are advised to seek the expert services of Tax Consultants UAE to navigate and combat any tax intricacies upon tax planning and implementation. At Tax Consultants UAE, we assist taxable persons to seamlessly form tax groups in compliance with tax standards and statutory tax regulations. Thus, contact us today and we shall be happy to assist you.
