What are Tax Groups under the UAE Corporate Tax? 

As per the UAE corporate tax statute, Two or more Taxable Persons who meet certain conditions can apply to form a “Tax Group” and be treated as a single Taxable Person for Corporate Tax purposes. Thus, it is advisable for taxable persons to consult UAE tax consultants to determine their tax liability and to stay compliant to the Federal Tax Authority’s regulations and standards. 

How Can Taxable Persons Form a Tax Group? 

To form a tax group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.

the parent company must:

• own at least 95% of the share capital of the subsidiary.
• hold at least 95% of the voting rights in the subsidiary.
• is entitled to at least 95% of the subsidiary’s profits and net assets.

How is Taxable Income of a Tax Group Calculated?

To determine the Taxable Income of a Tax Group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the Tax Group for the relevant Tax Period. Transactions between the parent company and each group member and transactions between the group members would be eliminated for the purposes of calculating the Taxable Income of the Tax Group.   

Are Unincorporated Partnerships Subject to UAE Corporate Tax?

An Unincorporated Partnership shall not be considered a Taxable Person in its own right, and Persons conducting a Business as an Unincorporated Partnership shall be treated as individual Taxable Persons under the UAE corporate tax. 

However, A Foreign Partnership shall be treated as an Unincorporated Partnership if the following conditions are met: 

1.  The Foreign Partnership is not subject to tax under the laws of the foreign jurisdiction. 
2.  Each partner in the Foreign Partnership is individually subject to tax with regards to their distributive share of any income of the Foreign Partnership as and when the income is received by or accrued to the Foreign Partnership.

 

Are transfers within the same groups exempted?

No gain or loss needs to be taken into account in determining the Taxable Income in relation to the transfer of one or more assets or liabilities between two Taxable Persons that are members of the same Qualifying Group

Two Taxable Persons shall be treated as members of the same Qualifying Group if:

1. The Taxable Persons are juridical persons that are Resident Persons, or Nonresident Persons that have a Permanent Establishment in the State. 
2. Either Taxable Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in the other Taxable Person, or a third person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons. 
3. None of the Persons are an Exempt Person.
4. None of the Persons are a Qualifying Free Zone Person. 
5. The Financial Year of each of the Taxable Persons ends on the same date. 
6. Both Taxable Persons prepare their financial statements using the same accounting standards.

Exempt Persons under the UAE Corporate Tax

Are payments to connected persons exempted

A payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if and to the extent the payment or benefit corresponds with the Market Value of the service, benefit or otherwise provided by the Connected Person and is incurred wholly and exclusively for the purposes of the Taxable Person’s Business.

Seek expert consultation from UAE top tax consultants. 

Essentially, it is advisable for taxable persons to consult UAE tax consultants to determine their tax liability and to stay compliant to the Federal Tax Authority’s regulations and standards to which noncompliance accrues hefty fines. Thus, contact us today and we shall be glad to assist you. 

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Source:

“Federal Decree Law no. 47 of 2022”, https://mof.gov.ae/wp-content/uploads/2022/12/Federal-Decree-Law-No.-47-of-2022-EN.pdf.