Following information is prepared based on the public consultation document issued by the UAE Ministry of Finance and this needs to be reconfirmed once the final law is released.
Q) Can a Tax group be formed under UAE Corporate Tax Regime? If so, what are the conditions to be met to form a Tax Group?
UAE resident group of companies can elect to form a tax group and be treated as a single taxable person if the following conditions are fulfilled:
- The parent company must hold at least 95% of the share capital and voting rights of its subsidiaries
- Neither the parent company nor the subsidiaries can be an exempt person or a Free zone person that benefits from the 0% CT rate
- All group members must use the same Financial Year
- A notice signed by the Parent company and all its subsidiaries will need to be submitted to the FTA
Q) Can a subsidiary be part of the Tax group if its owned indirectly by the parent company?
Yes. A subsidiary can also be a part of the tax group if it is owned indirectly by the parent company if:
- The other subsidiaries own at least 95% of the shares of its shares or
- It is UAE branch of the parent company or one of its subsidiaries
Q) How is the tax group treated under UAE CT regime and who is responsible for administration and payment of corporate tax?
The tax group is treated as a single taxable person and the parent company is responsible for administration and payment of CT on behalf of the Tax group. The parent company has to consolidate the financial accounts of each subsidiary by eliminating the inter-company transactions.
Q) Who is liable for the Group’s corporate tax?
The parent company and each subsidiary will be jointly and severally liable for the Group’s CT for the period during which the entities are members of the tax group. This liability can be limited to one or more members of the group with the approval from the FTA.
Q) Can a Group Company transfer Tax losses to another Group company even if they are not part of the tax group under UAE Corporate Tax regime?
UAE CT regime allows group of companies that do not meet the 95% common ownership requirement or that do not want to form a tax group, to transfer Tax losses to another group company with profits provided the following conditions are met:
- UAE group companies are at least 75% commonly owned
- The companies are not exempt or benefit from 0% Free zone CT regime
- The Tax loss offset shall not exceed 75% of taxable income of company receiving the transferred losses
Q) What are the conditions to be met to avail the Intra-group transfer of assets relief under UAE CT regime?
Intra-group relief will be available on transfer of assets and liabilities between UAE resident companies if
- They are at least 75% commonly owned and
- The assets or liabilities that are transferred remain within the same group for a minimum of 3 years
Q) How is the transfer of assets and liabilities treated in the books of accounts?
The relevant assets and liabilities will be treated as being transferred at their tax net book value, so that neither a gain nor a loss needs to be taken into account when calculating the taxable income of the transferor and the transferee company.
Q) What are the implications/consequences of not meeting the conditions of Intra-group relief?
When the conditions for intra-group relief do not continue to be met, any gain or loss that would have arisen upon the initial transfer off assets/liabilities will need to be calculated and included in the transferor’s tax return in the tax period in which the conditions ceased to be met.
Q) Is there any exemption available on qualifying restructuring transaction?
When a whole business or independent parts of a business are transferred in exchange of shares in the company or other ownership interests, the transferor company will get an exemption from CT in respect of any gain on the transfer and the acquiring company will continue with the transferor’s existing tax basis in the transferred assets and liabilities.
Similar to intra-group relief, assets and liabilities transferred will be treated as being transferred at their tax net book value.
Q) When will the restructuring relief be clawed back?
Any restructuring relief will be clawed back if there is a subsequent transfer of the business to a third party with in 3 years of the restructuring. In this situation, any gain or loss that would have arisen upon the initial transfer would need to be calculated and included in the tax return for the tax period of the third-party disposal.
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