In this discussion, we will explore the intricacies of Tax Groups, a significant component of the UAE Corporate Tax Regime. Tax Groups offer corporations and businesses in the UAE an avenue for streamlined tax compliance.
Understanding Tax Groups
In the UAE, a Tax Group consists of two or more juridical resident persons that unite for tax purposes. Once formed, these members are treated as a single taxable entity, simplifying the calculation of taxable income. Consolidating financial results allows for a more efficient tax filing process, as only one tax return must be submitted to the Federal Tax Authority (FTA).
Eligibility and Formation
To be eligible for Tax Group formation, each member must be a resident person under the Corporate Tax Law and a tax resident of the UAE. Application for forming a Tax Group is submitted to the FTA, which holds the authority to approve or reject based on compliance with specified conditions. It’s important to note, forming a Tax Group is optional and not mandatory for all taxable persons.
Determining Taxable Income
Upon formation, the parent company assumes responsibility for meeting ongoing corporate tax compliance obligations on behalf of the group. Taxable income is determined by consolidating the financial results of all members. This consolidated approach ensures that tax liability is calculated based on the group’s combined income, providing a holistic view rather than individual entities.
Financial Year Condition
The Financial Year condition is a crucial aspect of Tax Groups, aiming to align the financial years of group members. This reduces the complexity of apportioning results and ensures a cohesive reporting structure. It’s worth noting, the provisions of the Corporate Tax Law, including those related to Tax Groups, apply to tax periods commencing on or after 1 June 2023.
Tax Treatment within a Tax Group
Revenue earned from members of the Tax Group is eliminated for calculating taxable income. However, interests held by entities outside the Tax Group but within the same Qualifying Group are considered for specific provisions, such as the Participation Exemption.
Compliance Requirements
The parent company, as the representative of the Tax Group, is responsible for submitting the consolidated tax return to the FTA. Accurate reporting and compliance with relevant tax regulations are imperative to avoid penalties or legal consequences.
Additional Insights
Juridical Resident Persons forming a Tax Group must meet specific eligibility criteria, including tax residency and share capital ownership. The parent company must own at least 95% of the share capital in each subsidiary, either directly or indirectly.
How TME Legal Consultants Can Support Your Business
Tax Groups present an innovative approach to corporate taxation in the UAE, offering simplicity and efficiency. While these insights provide a comprehensive overview, it is crucial for entities considering Tax Group formation to refer to official publications and guidelines provided by the FTA for detailed and up-to-date information.
TME Legal Consultants is a team of 45 legal, tax, accounting, and compliance professionals with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well-oriented in the new and fast-evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.
