The UAE Federal Tax Authority (FTA) has recently released detailed guidance on tax grouping regulations under the Corporate Tax Law (CTL), applicable to financial periods starting from June 1, 2023. This guidance elaborates on various aspects of tax group formation, dissolution, taxation, and compliance requirements.
Eligibility and Conditions for Tax Group Formation
A Resident Person, who is a “Parent Company”, can make an application to the Authority to form a Tax Group with one or more other Resident Persons, each referred to as a “Subsidiary”, where all of the following conditions are met:
- All participating entities must be juridical persons
- The parent entity must own, either directly or indirectly, at least
- 95% of the share capital of the Subsidiary
- 95% of voting rights of the Subsidiary
- 95% of profits and net assets of the Subsidiary
- None of the entities (Parent or Subsidiary) is an exempt person
- None of the entities is a qualifying free zone person.
- All entities (Parent or Subsidiary) must prepare the financial statements using the same accounting standards (IFRS or IFRS for SMEs) and have the same fiscal period.
Note: Notwithstanding (3) above, one or more Subsidiaries in which a Government Entity directly or indirectly owns at least a 95% ownership interest as specified in (a), (b), and (c) above can form a Tax Group, subject to the conditions to be prescribed by the Authority.
Read more about tax group eligibility and its advantages in the UAE.
Application for Formation:
- The Parent Company and each Subsidiary must jointly apply to the Authority to form a Tax Group under Clause (1).
Learn the process and timelines for Corporate Tax Registration in the UAE.
Single Taxable Person:
- Once formed, the Tax Group is treated as a single Taxable Person, represented by the Parent Company.
Compliance Obligations:
- The Parent Company is responsible for ensuring compliance with Chapters Fourteen (Payment and Refund of Corporate Tax), Sixteen (Tax Registration and Deregistration), and Seventeen (Tax Returns and Clarifications) of the Decree-Law on behalf of the Tax Group.
Get a detailed overview of UAE Corporate Tax Law and its implementation.
Joint and Several Liability:
- Both the Parent Company and each Subsidiary are jointly and severally liable for the Corporate Tax payable during the period they are members of the Tax Group.
- This liability may be limited to one or more members with the Authority’s approval.
Article (45) Compliance:
- All members, including the Parent Company and Subsidiaries, must adhere to the provisions of Article 45 relating to Withholding taxes of the Corporate and Business Tax Laws.
Adding Subsidiaries:
- A new Subsidiary may join an existing Tax Group upon application by the Parent Company and the Subsidiary to the Authority.
Exiting the Tax Group:
- A Subsidiary may exit the group:
- Upon Authority’s approval of an application by the Parent Company and the Subsidiary.
- If the Subsidiary no longer meets the eligibility conditions detailed above.
Dissolution of a Tax Group:
- A Tax Group ceases to exist.
- Upon application by the Parent Company and subsequent approval by the Authority.
- If the Parent Company no longer meets the necessary eligibility conditions detailed above, unless replaced by another Parent Company as explained in the next point.
Replacement of Parent Company:
- The Parent Company can make an application to the Authority to be replaced by another Parent company without dissolving the group in the following circumstances:
- The new Parent Company meets the required eligibility conditions as explained above.
- The former Parent Company ceases to exist, and the successor (new Parent or Subsidiary) assumes its legal status.
Authority’s Discretion:
- Notwithstanding the above points relating to dissolution and replacement, the Authority reserves the right to dissolve a Tax Group or change its Parent Company based on available information and must notify the Parent Company of such actions.
How does BCL Globiz help?
At BCL Globiz, we specialize in guiding businesses through complex Transfer Pricing challenges, ensuring compliance with UAE regulations while optimizing tax efficiency. Our expertise in benchmarking, documentation, and audit readiness helps businesses navigate evolving TP landscapes with confidence. By adopting a structured approach, companies can not only ensure compliance but also enhance their credibility and operational transparency in the global marketplace.
Understand how Transfer Pricing intersects with corporate tax grouping strategies.
We shall cover many more aspects related to Tax Grouping in Part 2.
For more details, contact our expert at nikhil@bclglobiz.com and visit www.bcl.ae today.
