The taxation requirements in the UAE are transforming based on the revolutionizing business landscape. The UAE Federal Tax Authority (FTA) has recently published comprehensive guidelines on the rules of tax groups in the Corporate Tax Law. The applicability of this law is from 1 June 2023. The detailed rules highlight various aspects of tax group conditions, such as their formation, eligibility criteria, termination, and compliance requirements.

The benefits tax grouping brings for businesses include being able to pay tax and transfer tax loss and liabilities collectively as a group without creating a tax impact.

Tax Groups: What Are They?

For the purposes of UAE taxation, tax groups permit a collection of businesses with a common owner to be regarded as a single taxable company. Combining the group’s financial accounts and allowing the parent firm to handle the group’s tax affairs, this streamlines compliance.

Who may create a tax group?

Below entities can opt for tax group formation.

Legal Individual: Since natural individuals or persons cannot be members of this tax group, members of the tax group must be juridical persons.

Tax Residents: The group’s members should all be businesses that are UAE tax residents.

Conditions for Group Taxation

Provided that all of the following UAE tax grouping requirements are satisfied, entities within a UAE group may decide to create a tax group:

• At least 95% of the following are owned by the parent firm, which must be a tax resident of the United Arab Emirates, either directly or indirectly in each subsidiary:
  1. Capital of shares
  2. The right to vote
  3. Profit and net asset entitlement
• Every entity in the group must use the same accounting standards to generate its financial statements and have the same fiscal year.
• The main firm is not a Qualifying Free Zone Person (QFZP) or an exempt person, nor are any of its subsidiaries.
• When there is no Double Taxation Agreement (DTA) between the United Arab Emirates and another foreign jurisdiction, or when the DTA does not provide a definitive tie-breaker provision for dual residency, the residential status of juridical persons must be ascertained.
• The tax term must be the same for every member of the tax group. In the event that the tax periods are different, they must coincide by submitting an application to the Federal Tax Authority (FTA) and fulfilling specific requirements. The tax period’s termination date, however, cannot be unconnected to any of the members of the desired tax group.

The parent business will be in charge of the administration of the tax group when it is formed, which includes filing a single tax return and paying the group’s tax debt.

Accounting Requirements 

Below are some accounting requirements for the UAE Corporate Tax Group to consider:

• Even if a member’s revenue exceeds AED 50 million, the parent business and each subsidiary that is a part of the tax group do not need to prepare and keep separate audited financial statements.
• When creating the group’s financial statements, each tax group member must follow a single accounting policy that complies with the relevant accounting standards.
• Consolidated financial statements and a statement that compiles the standalone financial statements of every entity in the tax group are required for Corporate Tax (CT) purposes.
• Whenever a member leaves the group or the group dissolves, the parent business and each subsidiary that was part of the group must produce its standalone financial statements using the same accounting basis as the tax group. 
• Adopting the group’s recorded values for pertinent assets and liabilities as the starting points for the solo financial statements is part of this. It is also necessary to preserve the choice made in the first tax period about whether to recognize profits or losses on a realization basis.

Tax Groups Compliance Obligations

The deadlines for submitting an application or informing the Federal Tax Authority (FTA) have been made clearer for a number of situations, such as the creation, joining, leaving, parent company replacement, and tax group termination. 

Having a current Tax Registration Number (TRN) is a requirement for the parent business and any subsidiaries looking to create a tax group. Members who form or join a tax group will no longer be obliged to submit individual tax returns as independent taxable people, but they do not need to be deregistered.

The parent firm of the tax group is responsible for certain duties, such as choosing to exclude the net income of foreign permanent establishments owned by the group and notifying the FTA of any changes to the realization basis election. The FTA’s approval of the application does not imply that all requirements for creating a tax group for the applicable tax period have been fulfilled. The FTA has the right to review adherence to these terms at any point.

Advantages of  Corporate Tax Groups

Easier Tax Submission: By combining all members’ tax returns into one file, the Tax Group saves time and eliminates the need for individual filings for every business.

Offsets for Losses: One group member’s losses may be deducted from the other members’ winnings.

Decreased Administrative Stress: The organization saves time and money by managing a single tax registration and return, which reduces paperwork.

Enhanced Cash Flow: The organization’s total cash flow can be improved by the capacity to immediately save money on taxes by offsetting losses inside the group.

Internal Transactions Made Simpler: Group member transactions are exempt from transfer pricing regulations, which streamlines internal communications and lowers administrative complexity.

How Accountax Can Help with the Formation of Corporate Tax Groups

For qualified company groups, creating a corporate tax group in the UAE provides a competitive edge by streamlining tax administration, maximizing tax obligations, and enhancing financial management. But it’s important to pay close attention to the eligibility requirements, operational changes, and any liability effects. With in-depth knowledge of the corporate tax system in the United Arab Emirates, Accountax offers direction at every stage, guaranteeing a smooth creation and adherence to all regulations necessary for a fruitful group arrangement