UAE-based MBG Corporate Services specialises in tax impact, transfer pricing assessments and the review of cross-border transactions, as well as in planning operational implementation for businesses in the UAE, helping them in their preparedness assessment.
With the implementation of corporate tax in the UAE, Amit Sachdev, CEO – Direct Tax & Legal, MBG Corporate Services , talks exclusively to GN Focus about the concept of tax groups and its relevance in the context of UAE corporate tax laws. Excerpts from the interview:
What is the concept of tax group?
In principle, every taxable person is independently subject to corporate tax. An exception to this globally accepted separate entity approach is the concept of tax group, which allows multiple taxable persons (two or more) to operate as one taxable person for corporate tax purposes under UAE corporate tax law (law).
What are the eligibility conditions to form a tax group?
To form a tax group, all the following conditions must be met:
i) The parent company and the subsidiaries are resident juridical persons
ii) The parent company must directly or indirectly own 95 per cent or more of the share capital and voting rights of subsidiaries
iii) The parent company must be directly or indirectly entitled to 95 per cent or more of the subsidiary’s profits and net assets
iv) Both the parent company and subsidiary should not be an exempt person or qualifying free zone person under the law
v) Both the parent company and subsidiary must have same financial year and prepare their financial statements using same accounting standards
Once the group is formed, provisions of the Law shall apply to the group instead of individual group subsidiaries. The taxable income threshold shall apply to the taxable income of the tax group and not to each subsidiary individually.
How will a Tax Group obtain CT registration?
Both the parent company and subsidiary should firstly obtain separate registration under the law, followed by which an application shall be made to the Federal Tax Authority (authority) by both of them wishing to form a tax group. Once approved, the tax group shall ordinarily come into existence from the beginning of the tax period mentioned in the application. The authority, has however the right to determine another tax period to form a tax group.
How is taxable income of a tax group calculated?
Once a tax group is formed, it will compute its consolidated taxable income. The parent company shall consolidate financial results, assets and liabilities of each subsidiary and the parent company for each tax period after eliminating their inter-se transactions.
What are withholding tax requirements for a tax group?
Currently, withholding tax rate is 0 per cent but if it gets increased each subsidiary (Member) of the tax group will be responsible for deducting withholding tax and depositing it. The parent company of the tax group shall not be responsible to comply with withholding tax obligations on behalf of its subsidiaries.
Can subsidiary of the tax group be increased or reduced anytime?
Yes, if any subsidiary meets the eligibility conditions, it can join an existing tax group. Both the subsidiary and the parent company shall have to file an application and obtain approval from the Authority for inclusion of the subsidiary in the tax group. Likewise, any subsidiary can leave the group if it no longer meets these conditions. Any subsidiary, can also voluntary leave the tax group. Both the parent company and subsidiary shall file an application and obtain approval from the Authority for exit of the subsidiary from the tax group.
Once formed, can a tax group be dissolved?
Yes, a tax group shall cease to exist if the parent company files an application and obtains approval from the authority.
If the parent company, no longer meets the eligibility conditions it can file an application to the authority seeking its replacement with the other parent company subject to the later meeting prescribed conditions. Even, if the parent company of an existing Tax Group legally ceases to exist and has a universal legal successor, it can file an application to the authority for its replacement with its successor. In both these situations, there is no discontinuation of the Tax Group.
The authority also has the discretionary power to dissolve a tax group or change the parent company based on the information available with it after notifying to the Parent Company.
Do you think tax group structure will benefit UAE businesses?
The tax group structure certainly offers administrative convenience and ease of compliance to businesses having diversity and large operations subject to meeting eligibility conditions under the law. A careful assessment is however recommended to take an informed decision to consider to opt for a tax group structure.