Tax Group & Other Relevant Provisions as per UAE Corporate Tax Law

The FTA has issued a new guidance on Tax Groups on January 08, 2024.

 

What are Tax groups as per the Corporate tax law?

As per the Federal Decree Law no. 47 of 2022, Article 40 it mentions that the Parent company and its subsidiaries have to be in UAE.

The following conditions have to be met to form a Tax Group –

• The Parent company has to own 95% or more of share capital and also entitled its subsidiaries profits & net assets.
• The parent company & subsidiaries have to be a tax resident person in UAE to form tax group.
• Neither parent company nor subsidiary can be an Exempt person or Qualifying Free Zone Person.
• Both the Parent company & its subsidiaries must have the same FY and prepare their financial statements using the same accounting standards (as per the Ministerial Decision no. 114 of 2023.)

 

The Parent company and subsidiary company have to meet all the above conditions for in every tax period to continue to exist as a Tax group. If at any point they cease to exist as a tax group and then once again meet the above conditions in the future, then they can readmit themselves as a tax group with the FTA.

 

Are there any other restrictions on forming a tax group?

In addition to what is mentioned above, natural persons & Unincorporated partnerships cannot form Tax groups or be a member of a tax group.

 

When is an Entity considered a Resident person?

 To be an Entity and also a resident person –

• Be incorporated/ established/ recognized under applicable legislation of UAE.
• Be incorporated/ established/ recognized under applicable legislation of a foreign jurisdiction but the entity’s place of effective management (PoEM) is in UAE.

 

What if an Entity is considered as a resident of UAE & not taxed in foreign jurisdiction?

If considered a dual resident person it is regarded as tax resident of only the UAE under the tie-breaker rule of an applicable Double Taxation Agreement (hereafter referred to as DTA) with another jurisdiction, then they are notconsidered a tax resident of foreign jurisdiction.

Incase the dual resident person is taxed in a foreign jurisdiction under DTA then the resident person cannot form a tax group in UAE. In the scenario if the dual resident person is considered as UAE resident in one tax period and then in any subsequent period, they are taxed in a foreign jurisdiction then they cease to be a member of the Tax Group from beginning of tax period in which they became taxed under foreign jurisdiction.

 

Parent company held by a non-resident person.

There is a scenario where there is a foreign resident holding shares or interests of a Parent company which is considered a resident person in UAE. Then if the resident person who is considered a Parent company meets the conditions of Article 40 can form a tax group.

 

What if an entity in a tax group is eligible for small business relief?

If an entity that was previously eligible for small business relief joins a tax group, then after joining the tax group they will no longer be eligible for the small business relief.

 Thereafter, the revenue threshold for small business relief applies to the consolidated revenue of the tax group and not each member individually.

 

Can one member in the tax group use IFRS for SME’s and another member use Full IFRS?

There can be no difference in adoption of IFRS or IFRS for SME’s in a tax group.

IFRS for SME’s can be optionally adopted for a tax group, if the consolidated revenue is less than AED 50 million. However, there can be a difference in accounting policies between tax group members in standalone financial statements.

 

Should Corporate tax registration be done only at the Parent Company level?

The Parent Company & each Subsidiary that wants to apply to form a Tax Group should have a Tax Registration Number for Corporate Tax purposes. Once the application for forming a Tax Group is approved by the FTA, that Tax Group will be issued a separate Tax Registration Number and this Tax Registration Number will be used for the Tax Group for Corporate Tax purposes.

 

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Disclaimer: This material and the information contained herein, prepared by SPECTRUM AUDITING, are intended for clients and professionals to provide updates and are not an exhaustive treatment of the subject. We are not, by means of this material, rendering any professional advice or services. It should not be solely relied upon as the basis for any decision which may affect you or your business. This update provides certain general information as well as specific information regarding SPECTRUM AUDITING. This update should not be regarded as comprehensive or sufficient for the purposes of any decision-making.