The residents who elected to be classified as a single taxable company for the purposes of UAE Corporate Tax are tied to one another through a common ownership and control structure known as a Tax Group. A legal entity having an effective management location in the United Arab Emirates or one that is registered with the state is referred to as a resident person. With the Parent Company serving as the group’s representative member and managing compliance responsibilities, a Tax Group functions as a cohesive entity. Both the Parent Company and the Subsidiary are liable for the tax due jointly and severally in the Tax group. This article will discuss the recent development in dubai business tax and role of professional corporate tax consultant in dubai.  

How to create a tax group?  

To create a tax group, an application must be made to and approved by the Federal Tax Administration (FTA); 

• Any change or termination in the tax group during the tax period must be notified within the period determined by the FTA.  
• It also applies to government entities that are fully legal entities of the UAE government. In accordance with Ministerial Decision No. 125/2023 and Federal Tax Office Decision No. 12/2023, the criteria for the creation of the group are determined by the analysis of the tax structure.  
• The FTA has also published detailed guidance clarifying some of the complexities and nuances of the law regarding corporate taxation.  

Here are some important things you need to know: 

• Determination of tax revenue 

Tax revenue based on each member’s responsibilities, financial performance, income, expenses and assets in the actual tax bracket. Essentially, the transfer of entities in a tax group will be canceled unless members deny business-related losses before joining or creating the tax group. The guidance explains how to calculate taxable income for each member, how to use group tax loss, and how to calculate foreign tax in the case of double taxation.  

• Specific Provisions and Conditions 

The guide elaborates on some of the specific provisions and conditions related to Tax Groups, such as the determination of the residential status of juridical persons, the treatment of transactions between group members, the allocation of tax incentives and exemptions, and the application of anti-avoidance rules. 

• Uniformity In Tax Periods 

The guide emphasizes the importance of uniformity in Tax Periods among the members of a Tax Group. This means that all members must have the same start and end date for their Tax Period, which is usually a calendar year. If a member has a different Tax Period, it must apply to the FTA to synchronize it with the rest of the group, subject to certain conditions. 

• Accounting Practices:  

The guide clarifies that there is no requirement for separate audited financial statements for the Parent Company and the Subsidiaries within a Tax Group. However, all members must adopt a consistent accounting policy, in accordance with the applicable standards, when preparing their financial statements. 

• Compliance Obligations:  

The guide provides a comprehensive overview of the compliance obligations of a Tax Group, such as filing tax returns, paying taxes, keeping records, and submitting information. The guide also covers the scenarios of formation, joining, exit, replacement, and cessation of a Tax Group, and the timelines and procedures for notifying the FTA of these events. 

• Responsibilities Of the Parent Company 

The guide outlines the specific responsibilities of the Parent Company within a Tax Group, such as electing to exclude net income from Foreign Permanent Establishments, specifying changes in the election for the realization basis, and communicating with the FTA on behalf of the group. The guide also explains how to submit an application to the FTA for these purposes. 

• FTA Approval and Assessment 

The guide underscores that the FTA’s approval of the application to form a Tax Group does not automatically confirm compliance with the conditions for Tax Group formation. The FTA has the authority to reassess the compliance of a Tax Group at any time, and to revoke its approval if the conditions are not met. 

• Deductibility Of Expenditure Clarified 

The guide confirms that expenditure exclusively for the Taxable Person’s Business, devoid of capital nature, remains deductible under the UAE CT Law. Within the Tax Group context, expenditure is deductible even if it exclusively serves the business activities of other members with the assessment based on the collective activities of the Tax Group. 

• Exploring Qualifying Group Relief Election 

Touching upon the Qualifying Group Relief election, the guide notes that abstaining from the election is considered an implicit election upon entering or forming a Tax Group. Likewise, a Tax Group without such an election is deemed to have made the election if a new Subsidiary joins and has already made the election. 

• Utilization Of Tax Losses Strategized 

Ownership and business continuity conditions play a pivotal role in the utilization and carrying forward of tax losses within the Tax Group. In this context, relevance is solely placed on the ownership interest in the Parent Company, with business continuity assessed by referencing the Business Activities of the entire Tax Group. 

• Irrevocable Decision on Recognition Of Gains Or Losses 

The guide makes it clear that the decision to elect for the recognition of gains or losses on a realization basis is deemed irrevocable, barring extraordinary circumstances, and subject to approval from the FTA. Notably, exceptions are recognized when a Subsidiary, initially choosing a realization basis, joins a Tax Group that hasn’t made such an election in a subsequent Tax Period. 

• Transitional Rules: A Continuum Within the Tax Group 

Within the framework of transitional rules, the guide grants the Tax Group the authority to make an election that persists even after members exit or if the Tax Group ceases to exist. Importantly, when a Taxable Person becomes a member after the initial Tax Period, the transitional relief continues concerning relevant assets and liabilities. 

• Consistent Determination Of Transactions 

Within a Tax Group, transactions between members are consistently evaluated based on the arm’s length principle, regardless of whether these transactions have been consolidated. 

• Exclusion Of Small Business Relief 

The guide specifies that the exemption from Small Business Relief stands independently for juridical Resident Persons eligible for such relief and who are members of a Tax Group. 

• Calculating Foreign Tax Credits 

In a step-by-step breakdown, the guide outlines the process for determining Foreign Tax Credits that a Tax Group can assert, especially concerning foreign source income earned by its members. 

Forming a Tax Group in the UAE can offer significant benefits for Resident Persons, such as simplified tax compliance, reduced administrative costs, and enhanced tax planning. However, it also entails certain requirements and responsibilities, which are governed by the latest legislation and guidance from the FTA. Therefore, it is advisable to consult a qualified tax expert before forming a Tax Group and to ensure continuous compliance with the relevant rules and regulations. 

How can a Corporate tax Consultant help?  

Corporate Tax Consultants are the experts who have all the knowledge about this new law. They make sure that your business follows all the rules and regulations. Hiring one would be very beneficial for your business. You will not have to worry about anything, all the complexities are taken care of. ebs Chartered Accountants are one of the leading firms in Dubai providing the top corporate tax services. The team is comprised of experts in this field. They will help you step by step, from corporate tax registration to the calculation of the tax and filling of the tax. for further information regarding corporate tax, you can make use of the website uaetaxgpt.ae, all the information is available there on one click away.   

We are skilled in negotiating and investigating taxes with government bodies like the Federal Tax Authority by reviewing and drafting tax papers and offers strategic advice on complex tax matters. Feel Free to Contact us  

FAQS 

What are the recent changes in UAE tax group legislation? 

The recent changes in UAE tax group legislation primarily focus on enhancing transparency, compliance, and enforcement measures. 

How can businesses ensure compliance with the updated laws? 

Businesses can ensure compliance with the updated laws by staying informed about the changes, seeking expert advice, conducting internal audits, and updating their processes accordingly. 

Will the new legislation have any impact on tax rates for businesses? 

The new legislation may impact tax rates for businesses based on their sector, size, and activities. It is advisable to consult with tax advisors to understand the specific implications. 

Are there any exemptions available under the updated tax group laws? 

Exemptions may be available under the updated tax group laws for certain transactions, industries, or entities meeting specified criteria. It is essential to review the legislation and consult with tax experts for precise details. 

Where can businesses find more information on the recent developments in UAE tax group legislation? 

Businesses can find more information on recent developments in UAE tax group legislation by visiting official government websites, attending relevant workshops or seminars, consulting with tax professionals, and following updates from regulatory authorities.