How to Form a Tax Group Under the UAE Corporate Tax Regime? A Step-by-Step Guide

For business holders, the UAE's corporate tax system's inclusion of tax groups is important. Primarily, tax groups are eligible for the tax advantages and relaxations that are often offered to the specified group. Corporations get an upper hand in better tax planning and lower compliance expenses by establishing a corporation tax group in the UAE. The requirements and merits akin to tax groups are fully elucidated in the UAE corporate tax Public Consultation Document. Thus, it is highly advisable to seek the help of trusted and efficient corporate tax advisors in UAE. 

Who is eligible to form a tax group under Corporate Tax in the UAE?

If the parent business has a minimum of 95% of the voting liberties and shares capital of the subsidiaries, the group of firms that are residents of the UAE can create a tax group. To assess and determine whether you are qualified to establish a tax group, it is essential to consult corporate tax experts in the UAE. To establish a tax group in the UAE, the following prerequisites must be attained:

1. None of the parent firm's or subsidiaries' employees should be free/exempt.
2. No parent business or subsidiary should benefit from the 0% UAE corporate tax rate by being located in a free zone.
3. The same financial year must be used by all tax group members.

Still more, under the following circumstances, a subsidiary may be included in the corporation tax group for the UAE:

• If other subsidiaries control at least 95% of its shares and the parent firm owns it indirectly; or If the parent business or one of its subsidiaries has a territory in the United Arab Emirates.

How will tax groups be regarded as per the Corporate Tax Law?

Under the framework of corporate tax in the UAE, the tax group will be classified as a sole taxable person. This indicates that the fundamental exemption threshold will be imposed once, regardless of the firms involved, but that the definitive law will provide additional clarity. The management and expenditure of corporation tax should be handled by the parent firm on behalf of the group. One can also get assistance from expert corporate tax advisory services with the collection and management of corporation tax. Further, the parent firm must combine the financial records of each subsidiary for the applicable taxation duration to calculate the group's taxable revenue, omitting any transactions between the parent corporation and each subsidiary group partner.

Read more: Corporate Tax Rate for Large Companies that are Part of Multinationals

Tax Group liability 

The period of your membership in the Tax Group defines the liability criteria that indicate every subsidiary and parent firm is jointly accountable for group corporate tax until their membership is ended. The mutual and numerous liabilities may be restricted to one or more specific tax group members. To reduce this liability, one has to obtain the Federal Tax Authority's consent. You can seek the Federal Tax Authority's acceptance for limiting liability with the aid of corporate tax consultants in the UAE.

Tax Group relaxation for corporations

By the suggested corporate tax framework, businesses will be able to avoid or postpone paying corporate tax on transfers of properties or liabilities among group members. With the use of this clause, businesses can restructure without incurring extra costs in taxes. To remove taxable profits or losses, the corporate tax in UAE will also permit some corporate reorganization activities, such as mergers, to be carried out on a tax-neutral basis.

Read more: Impacts of corporate tax in UAE on Free zone Companies in UAE

Losses Transferred Under Corporate Income Tax UAE

There will be communities of businesses that either don't have the necessary 95% mutual holding or don't want to create a tax group. These businesses will be permitted, with some restrictions, to transfer tax losses from one firm group to another firm group. These circumstances are as follows:

• At least seventy-five percent of the United Arab Emirates group enterprises must be possessed collectively.
• The businesses shouldn't fall into the exempt section or be liable to a corporate tax rate of zero percent in a Free zone.
• The cumulative tax toll offset shall not be greater than seventy-five percent of the firm acquiring the transferred losses' taxable dividend during the applicable period.

Corporate tax counselors in the UAE may help corporations who want to create a corporate tax group determine whether they meet the requirements, such as ownership and tax resident status. Businesses can seek expert advice from the top tax experts in UAE if they run into any problems determining criteria for eligibility or aligning tax years.

Corporate Tax Consultants 

Since it is quite a laborious process to form a tax group under the UAE Corporate Tax Regime, it is immensely essential to seek the help of trusted corporate tax advisors in the UAE to ensure a smooth and efficient process of forming a tax group under the UAE Corporate Tax Regime. Corporate Tax advisors in UAE provide top-notch Corporate Tax Services in Dubai, UAE. So, do not hesitate to contact us today and we shall be happy to assist you.