For corporate tax purposes in UAE, companies can apply to form a Tax Group, which qualifies them to be considered as a single taxable entity. Therefore, to seamlessly form a taxable group in compliance with the corporate tax law, taxable persons are advised to seek the services of Tax Consultants in the UAE.
Conditions to Form a Tax Group
To form a tax group, the UAE parent company must directly or indirectly own at least 95% of the share capital and voting rights of each company in the group. Further, to form a Tax Group, neither the parent company nor any of the subsidiaries can be exempt persons or Free Zone entities benefiting from the 0 % corporate tax rate. Moreover, all companies within the group must have the same financial year and prepare their financial statements using the same accounting standards.
Can subsidiaries of Foreign Parent companies form a Tax Group?
Subsidiaries in the UAE that are exclusively owned by foreign parent companies can form a Tax Group. However, in this case, the UAE subsidiaries must be held by an intermediary UAE parent company, which will act as the parent of the Tax Group for UAE corporate tax purposes.
Can Foreign Entities be Included in a Tax Group?
Foreign Entities cannot be included in a Tax Group unless the foreign entity is managed and controlled in the UAE and considered a UAE resident entity for UAE corporate tax purposes. Only UAE resident juridical persons will be eligible to form or be part of a Tax Group. Whereas, once a Tax Group is formed, it is treated as a single taxable entity and the parent company will take the responsibility for the administration and payment of corporate tax on behalf of the group. During the period they are members of the group, both the parent company and each subsidiary share joint and several liabilities for the UAE corporate tax obligations of the Tax Group. These joint and several liabilities can be limited to specific named members of the Tax Group with approval from the Federal Tax Authority.
Will Tax Groups be required to prepare consolidated financial statements?
Essentially, to determine the taxable income of the Tax Group, the parent company must consolidate the financial accounts of each subsidiary for the relevant tax period and eliminate transactions between the parent company and each subsidiary within the group.
Relief available for transfers between group companies
Companies that belong to a Qualifying Group can transfer assets and liabilities among themselves at their net book value. This means that the transfer can be carried out without creating a taxable gain or loss for corporate tax purposes.
Definition of a Qualifying Group?
A Qualifying Group meets the following conditions:
The members are juridical persons that are either UAE residents or non-resident persons with a permanent establishment in the UAE. Further, either one member owns 75% or more of the other member, or a third party owns 75% or more of both entities. Neither member is an exempt person and neither member is a Qualifying Free Zone Person. Members prepare their financial statements using the same accounting standards and have the same financial year.
Is there any relief to facilitate mergers, spin-offs, and other restructuring?
The corporate Tax regime in the UAE allows lawful mergers, business consolidations, spin-offs, and similar transfers and restructuring transactions to be conducted without incurring any taxable gains or losses, as long as they satisfy the specified conditions.
Consult Tax Agent in UAE
To seamlessly form a taxable group in compliance with the corporate tax law, taxable persons are advised to seek the services of Corporate Tax in UAE. Therefore, contact us today and we shall be glad to assist you.