In a recent development, the UAE Federal Tax Authority (FTA) has provided comprehensive guidance on the tax group rules in the Corporate Tax Law (CTL), applicable for financial periods starting from June 1, 2023. This move aims to streamline the corporate tax landscape, offering both advantages and challenges for businesses considering tax grouping.
Benefits and Drawbacks of Tax Grouping: The advantages of forming a tax group are notable, including the ability to file a unified group tax return and facilitate the transfer of assets and liabilities without tax implications. However, potential drawbacks include the fixed zero rate on profits up to AED 375,000 at the group level, a revenue cap for small business relief, and joint liability for tax debts among group members.
Conditions for Tax Grouping: For companies to form a tax group, they must meet stringent eligibility criteria. These include being resident juridical persons, the parent company owning at least 95% of subsidiary shares, and adherence to uniform accounting standards within the group.
Taxable Income Dynamics: The parent company is tasked with consolidating the financial accounts of each subsidiary, adjusting for intragroup transactions. Transfer of tax losses between group members is allowed, emphasizing the importance of maintaining accurate records for each member.
Interest Deduction Limitation and Foreign Tax Credits: The restriction on net interest expenditure applies to the entire group, emphasizing a collective approach. Tax groups can claim foreign tax credits but must carefully consider the election to exclude foreign permanent establishment income.
Compliance and Changes in Group Composition: Compliance is a shared responsibility, with the group parent company taking the lead. Stringent requirements include filing joint applications, preparing consolidated financial statements, and maintaining thorough documentation on transfer pricing.
Cessation of the Tax Group: A tax group may cease to exist under specific circumstances, such as FTA approval, ineligibility of the parent company, or a transfer of business between two members. Timely communication with the FTA is crucial in these scenarios.
NRD Perspective: While tax grouping offers streamlined compliance, the strict conditions may limit eligibility. Businesses considering this approach should assess their qualifications, potential implications, and benefits. Early registration on the FTA portal is recommended for a smooth process. For registration and queries please contact our corporate tax expert on +971 50 6591233 or firstname.lastname@example.org