Requirements To Form A Tax Group | Corporate Tax in UAE | Spectrum Accounts

Tax Group – Requirements To Form A Tax Group And More Under UAE Corporate Tax


Why Tax Groups are required and what happens of a tax group is formed under UAE Corporate Tax Regime?

This section sets out the proposed UAE CT treatment applying to groups of companies.

Large businesses often conduct their operations through a group of companies, which has a parent company and a number of subsidiaries. These group structures are generally formed to limit or ring fence liabilities associated with certain activities, and facilitate the reporting and management of different business lines.

Operating through a Tax group of companies can increase the overall tax compliance cost where each entity needs to report their taxable income on a stand-alone basis, and can result in a higher effective tax rate for the group where some companies are profit making and others make losses.

To address the above concerns, the Corporate tax in Dubai regime will allow full consolidation for tax purposes (tax grouping) for essentially wholly-owned groups of companies, and the transfer of losses between group companies that are 75% or more commonly owned.

Who can form a Tax Group and how to form a Tax Group under UAE Corporate Tax Regime?

A UAE resident group of companies can elect to form a tax group and be treated as a single taxable person

  • if the parent company holds at least 95% of the share capital and voting rights of its subsidiaries. To form a tax group,
  • neither the parent company nor any of the subsidiaries can be an exempt person or a Free Zone Person that benefits from the 0% CT rate, and all group members must use the same financial year.
  • a subsidiary can also be part of the tax group if it is owned indirectly by the parent company and other subsidiaries own at least 95% of its shares, or if Corporate tax in UAE branch of the parent company or one of its subsidiaries.

How to form a Tax Group under UAE Corporate Tax?

To form a tax group, a notice signed by the parent company and all subsidiaries will need to be submitted to the FTA. Additional subsidiaries can join an existing tax group by following the same process.

What is the effect of forming a Tax Group under UAE Corporate Tax?

Following is the effect of forming a Tax Group under UAE Corporate Tax Regime:

  • The tax group is treated as a single taxable person,
  • The parent company responsible for the administration and payment of CT on behalf of the tax group.
  • Corporate tax in UAE ,To determine the taxable income of the tax group, the parent company will have to consolidate the financial accounts of each subsidiary for the relevant tax period, and eliminate transactions between the parent company and each subsidiary group member (and amongst the subsidiary group members).
  • For the period during which the entities are members of the tax group, the parent company and each subsidiary will be jointly and severally liable for the Corporate tax in UAE .
  • This joint and several liability can be limited to one or more named members of the tax group, with approval from the FTA.

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