Tax Groups and Transfer of Losses Under Corporate Tax in UAE

TAX GROUPS AND TRANSFER OF LOSSES UNDER CORPORATE TAX IN UAE

UAE businesses have the option of creating a fiscal unity or tax group for CT purposes. Companies are taxed on a consolidated basis under this tax group because one company's tax losses can be used to reduce another company's taxable income. In several European countries, tax banding is widespread.

For each entity, UAE corporate tax returns must be filed. Wherever practical, firms should think about joining tax groups since they will have a lower administrative burden (such as just having to file one corporate tax return as opposed to many corporate tax filings for each group company). This ought to make it simpler to use tax losses as a group.

WHAT IS A TAX GROUP?

Under the UAE corporate tax regime, which will become effective in June 2023, companies are allowed to establish tax groups. Large corporations usually have a group of companies that work together to run their operations. Each of these companies will have a parent company and several subsidiaries.

To limit or fence off obligations, businesses construct tax groups, which reduces the cost of your overall tax compliance. Whether a company is eligible to create a tax group depends on whether it is subject to UAE corporate tax.

WHAT ARE THE REQUIREMENTS FOR FORMING A TAX GROUP?

To form a corporate tax group, you must fulfill the requirements outlined by the Ministry of Finance (MoF) of the United Arab Emirates:

• All tax group participants should adhere to the same fiscal year.
• At least 95% of the voting rights and share capital of a subsidiary must belong to the parent company.
• Companies can establish a tax group, particularly if every group member resides in the UAE.
• A tax group may include an exempt individual or a firm operating in a free zone with a corporation tax rate of 0%.
• A subsidiary may join a tax group if it is indirectly owned by the parent company and other subsidiaries own at least 95% of its shares, or if it is a UAE branch of the parent company or one of its subsidiaries.

HOW TO TREAT TAX GROUPS UNDER CORPORATE TAX IN UAE?

Under the UAE's corporate tax framework, the tax group will be classified as a single taxable person. The parent firm on behalf of the group should handle the administration and payment of corporation tax.

This indicates that the fundamental exemption limit will be imposed once, regardless of the firms involved, but the final law will provide additional clarity.

TRANSFER OF LOSSES UNDER THE UAE CORPORATE TAX

There will be groups of companies that do not fulfill the minimum 95% common ownership criterion or that do not wish to create a tax group, although the UAE corporate tax framework may permit this under specific circumstances.

These companies will be permitted, with some restrictions, to transfer tax losses from one Group Company to another Group Company. These circumstances are as follows:

• At least 75% of the UAE group enterprises must be held collectively.
• The companies shouldn't fall into the exempt category or be subject to a corporation tax rate of 0% in a free zone.
• The overall tax loss offset shall not be greater than 75% of the firm receiving the transferred losses' taxable income during the applicable period.

How can we help?

The services provided by our team of corporate tax consultants include CT Assessment & Advisory Services, CT Compliance Services, and CT Agent Services to act as the Federal Tax Authority (FTA) of the UAE in the event that the FTA issues any notices. You can assure business tax compliance and avoid legal issues by choosing BRS corporate tax services in the UAE.