UAE Corporate Tax – Group Formation: as per Public Consultation Document

September 20, 2022Dated:  | |

The UAE Ministry of Finance issued a public consultation document that contains information related to the proposed UAE Corporate tax regime. The document provided input from the interested parties. The document does not represent any kind of final legislation and cannot be relied upon by the individual or commercial to take the decisions.

The concept of a tax group is essential for companies with many licenses in the UAE. Many companies tend to operate as a group of companies or as a single unit with the option to be a tax group or not. It reduces the compliance cost but also helps reduce the effective tax rate of the company.

The UAE Ministry of Finance recognized the importance of consultation with the business community and other interested stakeholders. They launched the initiative ahead of the final legislation being released.

The public consultation document outlines the rationale for the federal CT regime and its key principles. The consultation documents talk about two different types of a group such as

  • Tax Group-  In this group those who have one registration can file a single return as a group. 95% of the group companies must be owned.
  • The groups can enjoy the transfer losses between the group companies. Yet, in this case, each entity must have a separate registration and file returns.

Who can form a tax group?

According to the consultation documents, there are certain conditions are needed to be followed for being a part of the tax group such as

  1. The parent company must hold 95%  of the shares and voting rights of the members.
  1. All the group members must have the same financial year-end.
  1. The parent company or member of the group shouldn’t be exempted from the corporate tax.
  1. The parent company and member of the group should not be a freezone company taxed at 0%.
  1. The parent company and member companies must sign and submit it to the FTA.
  1. The branches of the parent company or subsidiaries are also allowed to be part of the tax group.

What does it mean to be part of the tax group for CT?

  • The parent company handles all the administration and tax payments.
  • The parent company should merge the financials of the group. There should be no intercompany transactions.
  • All the members of the tax group inclusive of the parent company will be joint and liable for paying the corporate tax.

What are the conditions to transfer losses between the group companies?

There are several cases in which the following conditions should meet to transfer the losses such as

75% of the companies must be owned.

The company is not exempted from paying corporate tax.

The company is not a freezone company with a 0%  CT benefit.

The total loss can be offset and cannot be more than 75% of the taxable income of the company receiving the transfer.

What happens when gains or losses are to be accounted for transfer of assets and liabilities between the group companies?

In this case, the companies should be 75% owned for the transfer of assets and liabilities at the net book value. The gain or loss on the same cannot be transferred.

If any of the conditions don’t adhere and in the period in which this happens the gain or loss are needed to consider for transfer.

What happens during the merger or acquisition?

Restructuring relief exists for the companies that are acquired, merged, or restructured. They are exempted from the deferral of the corporate tax payment. In the case of the acquisition, the acquisition will continue with the transferor’s existing tax basis in the transferred assets and liabilities. Thus, no gains and losses need to be taken into account as the tax net book value needs to be transferred.

How FC Tax Consultants can help?

If you need help in regards to the consultation document and you are not aware of the impact of the UAE CT on your business. FlyingColour Tax Consultants are here to help you understand what steps you should take that align with the CT and become effective.

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