The UAE Corporate Tax Regime which would come into effect from June 2023, announced the concept of the Tax Group.
However, there already exists a similar concept in the UAE VAT Regulations as well. Therefore the question arises as to whether businesses can extend the same criteria and register as Tax Group.
Let’s recapitulate the criteria to form a Tax Group as per UAE VAT Regulations:
Thus, Tax Group under UAE VAT Regulations gives more importance to the CONTROL aspect.
Only the representative member of a prospective Tax Group, who possesses a Tax Registration Number (TRN) for VAT can apply to form a Tax Group.
During the application process, the representative member shall submit the proof (control conditions) as to how it is connected to the member entities.
However, as communicated through the Consultation Document on UAE Corporate Tax released on April 28, 2022, the criteria for forming the Tax Group stresses ownership, unlike control in the UAE VAT Regime.
To form a Tax Group, a notice signed by the parent company and all subsidiaries must be submitted to the Federal Tax Authority [FTA].
Subsequent addition of a new entity to the Tax Group can be done by submission of a similar notice signed by the parent company and the new subsidiary.
Once the Tax Group is formed, it shall be considered as a single taxable person for all compliances under Corporate Tax in the UA
The Parent Company will be responsible (on behalf of all the Group Entities) for:
Group’s Corporate Tax will be joint and several liabilities of the parent company and each subsidiary. However, the same can be limited to one or more members with the approval of FTA.
Alternatively, the Corporate Tax Regime gives an option to transfer losses and transfer assets, and liabilities within the group subject to certain conditions:
Tax losses can be transferred from one company to another group company with profits, provided the following conditions are met:
Relevant assets and liabilities will be treated as being transferred at their tax net book value if the following conditions are fulfilled:
Violation of any of the above conditions shall result in withdrawal of relief in the tax period in which the conditions ceased to be met.
It is necessary that the business reviews its commercial and financial aspects to match to the regulatory requirements and determine whether forming a Tax Group is beneficial or all group companies should adhere to the Corporate Tax Regulations independently and take the advantage of offset of losses/transfer of assets options available, based on the conditions determined by the Regulation.
Further, businesses will also have to ensure that there is no conflict between the transactions within the Tax Group as per UAE VAT laws and UAE Corporate Tax Law.
Emirates Chartered Accountants Group[ECAG] is committed to delivering and freely explaining the implications of the introduction of Corporate Tax on your business. We hope our efforts to update you on the key developments in the region will help you to make an informed decision in your business.
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