A guide to Corporate Tax Groups in the UAE

Corporation tax was first introduced in the United Arab Emirates (UAE) on 10 October 2022 with the publication of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses). It applied to tax periods commencing on or after 1 June 2023.

Among its standout features is the ability for businesses to form Corporate Tax Groups, offering an opportunity for companies under common ownership to be taxed as a single entity. This streamlined approach simplifies tax compliance, optimises liabilities and reduces administrative burdens.

This guide sets out what you need to know about UAE Corporate Tax Groups, from their eligibility requirements to their benefits and compliance obligations.

What is a Corporate Tax Group?

Tax Groups are an optional regime, and a Tax Group is only formed if juridical Resident Persons, who meet the relevant conditions, apply to form one and it is approved by the Federal Tax Authority (FTA).

The Corporate Tax Law defines a Tax Group as two or more Taxable Persons (corporate entities) treated as a single Taxable Person according to the conditions of Article 40 of the Corporate Tax Law. Only corporate entities that are resident in the UAE can be part of a Tax Group.

Once a Tax Group is formed, the ‘parent company’ and its wholly- or majority-owned subsidiaries that are part of the Tax Group, are treated as a single taxable entity. Instead of each company calculating and submitting separate tax returns, the parent company files a consolidated tax return on behalf of the Tax Group.

The main objective of forming a Tax Group is to:

• Simplify tax administration, reporting and compliance.
• Enable the offsetting of profits and losses within the group.
• Simplify the transfer of assets and liabilities and other transactions and arrangements between members of the Tax Group, which can generally be disregarded when determining the taxable income of the Tax Group.
• Reduce the group’s overall corporate tax liability efficiently.

Eligibility Criteria

To form a Corporate Tax Group, companies must meet the following conditions:

• Common ownership
  • The parent company must own at least 95% of the shares, voting rights and profit distribution rights of each subsidiary.
  • Ownership can be direct or through intermediary entities.
• Tax residency
  • Both the parent company and subsidiaries must be UAE tax residents.
  • Non-resident entities are not eligible.
• Unified Financial Year
  • All members must share the same financial year-end to ensure consistency in reporting.
• Uniform accounting standards
  • Entities must follow the same accounting policies, typically in line with International Financial Reporting Standards (IFRS).
• Exclusions
  • Certain entities, such as Free Zone Companies benefiting from the 0% corporate tax rate (unless they opt for the 9% rate), regulated financial institutions, and companies that fail the 95% ownership test, are not permitted to join a Tax Group.

Benefits of forming a Corporate Tax Group

• Streamlined tax filing
  • The parent company submits a single consolidated tax return, significantly reducing administrative tasks and costs.
• Offsetting Profits and Losses
  • Losses from one group company can be used to offset profits from another, lowering the group’s overall tax liability.
  • This is especially valuable for expanding businesses where certain entities may still be in the early stages of profitability.
• Simplified Intragroup Transactions
  • Transactions between group entities, such as intercompany sales or cost-sharing arrangements, are generally ignored for tax purposes. This reduces the need for transfer pricing documentation.
• Improved tax planning
  • Businesses can strategically allocate profits and losses within the group, improving overall tax efficiency.
• Enhanced compliance
  • Uniform filing and reporting reduce the risk of errors or non-compliance.

How to register a Corporate Tax Group

To establish a Corporate Tax Group, follow these steps:

1. Prepare documentation
   • Trade licences of all entities.
   • Financial statements of the parent company and all subsidiaries.
   • An organisational chart showing ownership percentages.
   • A signed Tax Group Agreement among all entities.
2. Submit an application to the FTA
   • The parent company applies via the FTA online portal.
   • The FTA may request additional documents or clarifications during the review process.
3. Approval and issuance of Tax Identification Number (TIN)
   • Once approved, the Tax Group is registered and the parent company receives a TIN for the group.
   • The parent company assumes responsibility for filing and compliance.

Ongoing obligations

While Tax Groups simplify compliance, they also come with ongoing obligations:

• Joint and Several Liability
  • All group members are jointly liable for the group’s tax obligations.
  • If one entity fails to pay, the FTA can recover the amount from other group members.
• Maintaining eligibility
  • The 95% ownership requirement must be maintained at all times. Any changes in ownership or structure may require group restructuring or dissolution
• Reporting changes
  • Notify the FTA of significant changes, such as:
    • Adding or removing a subsidiary.
    • Changes in shareholding that impact eligibility.
    • Adjustments to the financial year.
• Individual record-keeping
  • Each entity must maintain separate records for auditing and compliance purposes, even if they are part of a Tax Group.
• Dissolution procedures
  • If a Tax Group dissolves, each entity must re-register as an independent taxpayer and submit individual tax returns going forward.

Forming a Corporate Tax Group under UAE law offers considerable advantages for businesses with multiple subsidiaries. By consolidating tax obligations, leveraging loss offsets and simplifying compliance, Tax Groups create opportunities for efficient tax management. However, careful planning and ongoing compliance are essential to maximise these benefits.

For businesses exploring this option, Sovereign PPG has the experience and expertise to determine whether forming a Corporate Tax Group will be the right move. Our tax professionals will then ensure that the complexities of eligibility, application and ongoing compliance are managed seamlessly.