Tax Group under UAE Corporate Tax

Resident Juridical persons can form tax group for the purpose of corporate tax however they must meet following requirements under Article 40 of Federal Decree Law 47:

1. All members must be resident juridical person
2. Parent company must hold 95% of the share capital or 95% of voting right or entitle to receive 95% of net profit or net assets of the Subsidiary, either directly or indirectly through one or more Subsidiaries.
3. No member should be an exempt person or a Qualifying Free Zone Person.
4. All member should follow same financial year and prepare their financial statements using the same accounting standards i.e. IFRS as suggested by Corporate Tax Law.

Forming a tax group allows all members to be treated as a single taxpayer, enabling them to offset profits and losses within the group. However, some ambiguities arise, particularly concerning the treatment of intra-group transactions and the handling of losses incurred before the tax group formation.

Ministerial Decision No. 301 published on 9 December 2024 further clarifies following topics related to tax group:

Ownership Requirements for a Tax Group:

To form or continue a tax group, the ownership conditions must be met continuously throughout the relevant tax period.

Residential Status of members of a Tax Group:

All members must be resident judicial person of UAE and if any member becomes a resident in another country or foreign territory then it shall be treated as leaving the Tax Group from the beginning of the Tax Period in which it became a resident of other country or foreign territory.

Transactions Before Forming or Joining a Tax Group:

• If a transaction between members of a tax group results in a deductible loss before the group is formed or joined, that loss must not be eliminated until it is fully reversed. The group must include any income in relation to that transaction when calculating the taxable income of the tax group.
• If transactions between members result in a gain or loss prior to joining a tax group, it must be included in the tax group’s income for the relevant tax period, up to the amount of the previously deducted loss.

Date of Formation of or Joining a Tax Group:

• Application to form or join a tax group shall be filed before end of tax period for which it has to be formed. Ownership condition should be met from beginning of such tax period.
• If a parent company transfers its entire business to another member of the tax group and ceases to exist, the new member replaces the parent company from the effective transfer date.
• A newly established juridical person can join an existing tax group from its incorporation date if it qualifies as a subsidiary or replaces the existing parent company.

Assets, Liabilities, and Financial Positions of Members:

• If any transactions between members of a tax group, including between two subsidiaries, included in the taxable income of the group then valuation adjustments and provisions in relation such transactions shall also be considered.
• Any elimination of gains or losses resulting from intra-group transactions must also include adjustments for changes in the value of the assets and liabilities involved in these transactions.

Pre-Grouping Tax Losses:

• Pre-Grouping Tax Losses of a subsidiary can be used to offset the taxable income of the Tax Group in a tax period, but only up to the lesser of:
• The taxable income of the Tax Group attributable to the subsidiary.
• 75% of the taxable income of the Tax Group in that period.
• Carried forward pre-grouping tax losses must first be used against the Taxable Income of the Tax Group within the specified limits, before other carried forward tax losses of the Tax Group are utilized.
• Pre-grouping Tax Losses should be fully used to offset the Taxable Income of the Tax Group, and any remainder can be carried forward to subsequent periods.
• Pre-grouping tax losses of a member will be forfeited if:
• The Taxable Income attributable to the member is not calculated according to ALP/TP rules.
• The amount of pre-grouping tax losses utilized is less than what could have been used to reduce the Taxable Income of the Tax Group

Arm’s Length Principle and Transfer Pricing Documentation Requirements:

In following cases taxable income attributable to each member shall be computed as per ALP/TP as specified in article 34.

1. A member has unutilized pre-grouping tax losses
2. New member joins and tax group has unutilised tax losses
3. Any member benefited from Qualifying Business Activity
4. Any member has unutilized carried forward Net Interest Expenditure.

The tax group must disclose relevant information about intra-group transactions, arrangements with related parties, and any relevant transfer pricing documentation required by the tax authority.

Determining Ownership Interest for transfer of Tax Loss and Qualifying Group Provisions

Ownership interests for purposes of transfer of tax loss and qualifying group provisions are determined based on the aggregation of assets and liabilities between the parent company and subsidiaries within the group. (i.e. at least 75% in another taxable person)

Business Restructuring

• If a tax group undergoes restructuring and one member transfers its business to another member, the group continues to exist as long as the transfer is completed within the group.
• If the group has only two members and one ceases to exist due to restructuring, the group is considered to cease.
• When a new juridical person is established and joins an existing tax group, the transfer of business is considered to have occurred within the tax group.

For these above conditions no separate election for business restructuring relief is required.

Income from Intra-Tax Group Transfers

Income from transfers of assets or liabilities between members of a tax group is generally excluded from tax calculations, provided the conditions for Transfers Within a Qualifying Group or Business Restructuring Relief under corporate taxare met.

Notification of changes to FTA:

The Tax Group must notify the   the date of change in membership or cessation of group.

Preparing Financial Statements upon a Subsidiary Leaving or Cessation of a Tax Group:

All members leaving tax group must prepare their Standalone Financial Statements based on the same accounting basis and elections as applied by the Tax Group and must adopt the values of the relevant assets and liabilities as recorded by the Tax Group.

Source: Ministerial Decision No. 301 of 2024 – On Tax Group