Welcome to our blog, where we unravel the complexities of tax groups and explore how they are formed in the United Arab Emirates (UAE). In the dynamic landscape of corporate taxation, understanding the concept of Tax Groups is essential for businesses seeking to optimize their financial structures. A Tax Group allows multiple taxable entities, meeting specific criteria to be treated as a single taxable entity for corporate tax purposes.
In this comprehensive guide, we delve into the formation of Tax Groups under UAE corporate tax regulations, shedding light on the eligibility criteria, the process of formation, and the responsibilities involved. From the requirements for formation to the calculation of taxable income and the effects of tax group formation, we aim to clarify this crucial aspect of UAE taxation.
Explore the conditions for transferring losses between group companies and gain insights into how businesses can benefit from the formation of Tax Groups. Whether you’re a business owner navigating the complexities of tax compliance or a curious reader keen on understanding UAE’s tax landscape, this blog is your go-to resource for solving the mysteries of Tax Groups.
What are Tax Groups?
When multiple taxable persons meet specific criteria, they can apply to form a “Tax Group,” which allows them to be treated as a single taxable entity for corporate tax purposes. To be eligible to form a Tax Group, the parent company and its subsidiaries must be resident juridical persons, use the same accounting standards, and have the same financial year.
How are tax groups formed under UAE corporate tax, and when can they be formed?
Corporations must comply with all the regulations and standards set by the Federal Tax Authority (FTA) when it comes to taxation. Before creating a tax group, the FTA must be notified, and both the parent firm and each of its affiliates must endorse the declaration. Subsidiaries wishing to join an established tax group must follow a similar procedure. However, it is important to note that all subsidiaries. And also parent companies will be considered as a single taxable entity before the Federal Tax Authority.
In addition, it is the parent company’s responsibility to handle all administrative processes and payment-related affairs. This includes submitting all relevant documents and paying taxes on behalf of the entire tax group. Therefore, corporations must ensure that they are in compliance with all FTA regulations to avoid any issues related to tax collection and payment.
The United Arab Emirates (UAE) provides provisions for creating and managing Tax Groups for corporations. This means businesses operating in the UAE must establish a tax group to comply with tax regulations and standards. To ensure a seamless process, it is highly recommended to seek the guidance of accredited tax consultants in the UAE.
Therefore, RFZ experts can provide valuable assistance in establishing a tax group. And also staying compliant with the latest tax regulations in the UAE. By working with our professional tax consultant, businesses can save their time and effort, reduce the risk of errors. And also avoid potential penalties for non-compliance with tax laws.
What are the requirements for UAE tax group formation?
If a corporation is subject to UAE corporate tax, it should examine whether it is eligible to establish a tax group. To qualify for the creation of a tax group under the UAE tax group’s jurisdiction, entities must meet specific requirements and criteria.
- The parent company can establish a tax group only if every participant in the group holds UAE resident status. This means that all members of the group must be resident in the UAE for tax purposes.
- An entity with a tax group can only be formed if at least 95% of its voting rights and share capital are held by its parent. This ensures that the parent company has a significant controlling interest in the subsidiary.
- The main firm and its subsidiaries should not qualify as exempt individuals or free zone entities that enjoy 0% UAE corporate tax rates. As a result, UAE corporate tax must apply to both parent and subsidiary companies.
- Both the parent company and the subsidiary must follow the same fiscal year for forming a tax group. This is to ensure consistency and accuracy in accounting and tax reporting.
- The subsidiary and parent entity must follow identical accounting criteria for keeping accounting records and summarizing financial records (FS). This ensures that financial reporting is consistent and facilitates the consolidation of financial statements.
- Directly or indirectly, through other subsidiaries, the parent company can claim 95% of the net revenue of shares of the subsidiary. This means the parent company has a significant financial interest in the subsidiary.
- A subsidiary can either be a direct or indirect owner of a company’s ownership, rights, and entitlements.
- It’s important to note that Tax Groups can’t include Exempt Persons or Qualifying Free Zone Persons. This limitation must be considered when forming a Tax Group to ensure compliance with relevant regulations.
What is the calculation of taxable income for UAE tax groups?
According to the regulations set forth by the Free Trade Agreement (FTA), corporations must adhere to specific rules when calculating the taxable revenue of the tax group. This involves the parent company eliminating all financial transactions and operations between itself and any subsidiary member of the group.
Furthermore, the financial records of every subordinate must be combined for the relevant tax duration. To ensure accurate calculations, all transactions made by the subordinate individuals must also be halted during this period.
Tax Group’s Corporate Tax Liability
During the period when both parties are included in a tax group, every subsidiary and the parent company will share responsibility for the group’s corporate income tax. This implies that each member of the group will be accountable for the payments and filings related to the tax.
However, with the approval of the Federal Tax Authority, the joint and individual obligation can be limited to one or more specific participants of the tax group.
In such cases, the selected participants will be responsible for the tax payments and filings, while the other members will be exempted from this obligation. This provision ensures that the group’s tax liabilities are distributed fairly and in accordance with the legal requirements.
Take advantage of UAE’s best tax services:
If you’re looking to create a tax group in the United Arab Emirates and want to ensure that you remain compliant with the Federal Tax Authority’s regulations and standards. In that case, you must seek the assistance of experienced and accredited tax consultants in the UAE. In this regard, RFZ Accounting is a trusted and reputable UAE tax agent that can provide expert guidance and support in establishing your tax group seamlessly and hassle-free.
With their extensive knowledge and expertise in the field of tax consultancy, you can rest assured that your tax affairs will be handled with utmost professionalism and care. So, why wait? Contact RFZ accounting today to take advantage of their premier tax services and ensure that your tax group is set up in accordance with the UAE’s tax laws and regulations.
The effects of tax group formation:
When a group of companies come together to form a tax group, they are treated as a single taxable entity for the purposes of corporate taxation. This means that all the financial transactions and activities of the group members are consolidated and reported as a single entity during the relevant tax period.
Once the financials of the tax group are consolidated, the parent company takes on the responsibility of administering and paying the corporate tax on behalf of the group. However, it’s important to note that any transactions between the parent company. And also the subsidiary group members must be eliminated or removed before consolidation.
It’s also worth noting that all tax group members, including the parent company, are jointly and severally liable for the payable corporate tax. This means that each member is held responsible for the payment of the tax debt to the authorities. However, it’s possible to limit the liability of one or more named group members with the Federal Tax Authority’s (FTA) approval.
Conditions to Transfer Losses Between Group Companies
For a group of companies to benefit from transferring losses between themselves, certain conditions must be met:
- Each entity must have separate registrations and file tax returns accordingly.
- At least 75% of the company must be commonly owned, meaning that the same shareholders have a significant stake in each company.
- The company cannot be exempt from corporate tax, and it cannot be a Freezone company with a 0% CT benefit.
It’s important to note that the offset loss can be up to 75% of the company’s taxable income receiving the transfer. This means that the amount of loss transferred must be proportional to the taxable income of the receiving company. By meeting these conditions, a group of companies can effectively transfer losses between themselves, ultimately providing significant benefits for the group as a whole.
Faq’s:
Following are the Faqs:
In the United Arab Emirates (UAE), group entities can form a tax group, subject to certain conditions.
- For instance, the parent company must be a UAE tax resident and directly or indirectly hold at least 95% of the share capital, voting rights, and entitlement to profits and net assets.
- Additionally, all entities within the group must have the same financial year.
- Use the same accounting standards for preparing their financial statements.
- It’s also worth noting that neither the parent company nor its subsidiaries can be classified as exempt persons or QFZPs (Qualified Financial Zone Persons).
- When a tax group is formed, the parent entity will be responsible for the administration, such as submitting a single tax return and settling the tax liability for the entire group.
To form a Corporate Tax Group in the UAE, it is important to note that only resident persons can be a part of it. This means that Permanent Establishments (PE) or branches of foreign companies in the UAE are not eligible to join a CT Group. Additionally, it is important to note that only juridical resident persons can be a part of a CT Group.
When it comes to taxation in the UAE, tax groups are required to prepare a consolidated financial statement. This statement should be based on either the International Financial Reporting Standards (IFRS) or IFRS for Small and Medium-Sized Enterprises (IFRS for SMEs), which will be used to determine their taxable income. If a Tax Group’s consolidated revenue exceeds AED 50 million, its consolidated financial statements must be audited to ensure complete accuracy and transparency. The auditing process helps identify any discrepancies or inconsistencies in the financial statements. And also ensuring that the tax group complies with all relevant regulations and tax laws.
Conclusion
In order to form a tax group according to UAE corporate tax, businesses need to analyze their financial status thoroughly. This analysis should determine whether the regulatory requirements are met and whether it is feasible for all entities within the group.
Contact us: Our RFZ team comprises experienced tax advisors and seasoned accountants. We are committed to providing our clients with practical and cost-effective tax services. Our experts are well-versed in the intricacies of tax compliance and are equipped to address any issues that may arise. Don’t hesitate to reach out to us for assistance with your tax-related queries. We’re here to help you.
