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tax group

What are the tax group under the UAE corporate tax?

Starting from June 1, 2023, the UAE has adopted a federal corporate tax in line with global standards. A crucial aspect of this tax law is the provision concerning tax group structures, dividing them into two categories: Qualifying Group and Tax Group.

In a Qualifying Group, formed between two or more entities, an individual must hold at least 75% direct or indirect ownership in each entity. Approval from the Federal Tax Authority isn’t necessary to establish a Qualifying Group. The primary advantage lies in the ability to transfer tax losses and assets among group members without recognizing gains or losses. However, each member still files tax returns individually based on their standalone results, limiting the benefits of consolidation.

On the other hand, a Tax Group offers more substantial benefits, allowing full horizontal consolidation. To qualify, a company must directly or indirectly possess at least 95% of voting rights in other entities.

To qualify as a qualifying group, companies must meet specific criteria:

  1. They must be UAE residents or have a permanent establishment in the UAE.
  2. Each company within the group must have at least 75% of its voting rights and share capital owned by another company in the group.
  3. All companies in the group must use the same accounting standards and have the same financial year.
  4. None of the companies in the group can be exempt from corporate tax or be a qualifying free zone person.

Once formed, a qualifying group calculates corporate tax based on the group’s overall profits rather than each individual company’s profits. This consolidation can lead to significant tax savings, particularly if some companies within the group are experiencing losses.
When assets or liabilities are transferred between qualifying group members, they’re treated as being transferred at the net book value, resulting in no gain or loss unless specifically elected otherwise.

During the calculation of taxable income, depreciation or amortization is excluded unless the assets or liabilities are sold to a third party. In such cases, any gain or loss incurred by the transferor, which was not previously subject to corporate tax due to the qualifying group relief, is taken into account

Eligibility of Creating Tax Groups

To form a Tax Group in the UAE, companies must meet strict eligibility criteria, primarily centered around ownership and control between entities:

  1. A company should directly or indirectly hold at least 95% of the voting rights and share capital of other entities it seeks to include in the Tax Group. This threshold must be met at both the beginning and end of the tax period.
  2. Voting rights can be held directly through shareholding or indirectly through other controlled entities.
  3. Entities wholly owned by individuals cannot form a Tax Group, even if they operate in the same business sector. Group ownership is necessary.

However, not all companies are eligible to form a qualifying group under UAE CT Law. Ineligible entities include real estate investment trusts, qualifying free zone persons, and exempt persons. Additionally, companies involved in illegal activities, experiencing financial difficulty, or with a history of non-compliance with tax laws may also be ineligible.

Approval from the Federal Tax Authority (FTA) is mandatory to form a tax group. Companies must apply to the FTA, providing details of member entities and meeting eligibility criteria. The FTA considers factors such as genuine business purpose, commercial rationale for consolidation, and ownership structure before granting approval. Ad-hoc arrangements created solely for tax benefits may not receive approval.

Forming a qualifying group offers several benefits, including reduced tax liability, simplified tax compliance, and improved financial reporting. Companies considering this option should contact the FTA for guidance. Working with qualified professionals ensures proper structuring to maximize the benefits of forming a qualifying group.

How SIAA can help you?

Square International Auditing and Advisory is one of the top accounting and auditing firms in the UAE, equipped with a team of knowledgeable experts well-versed in all prevailing tax laws, especially the recently introduced corporate tax. Our proficient experts can guide your firm to ensure compliance with corporate tax laws and help develop a robust tax framework to keep your firm on the right track, ensuring you avail all reliefs and benefits.

Receive personalized and custom-tailored service packages for your firm in the UAE from our leading accounting and auditing team. For more information about our services, feel free to reach out to our team at any time.