The UAE government announced in 2022 the implementation of a Federal Corporate Tax Law which will come into effect starting June 1st, 2023. Today, businesses across the UAE are concerned about their ability to survive in a competitive market with the implementation of Corporate Tax.
On the other hand, larger corporations and owners of multiple businesses are more apprehensive about their profitability and scale of operations rather than their survival. Large Corporations can be greatly affected by different tax implementations as they operate on a much bigger scale.
As a result, large corporations or multiple companies may choose to form a tax group for UAE Corporate Tax purposes if they find it beneficial for their business operations. So, in this post, we will be discussing how Corporate Tax in the UAE will impact Tax Groups as well as discuss what exactly qualifies multiple business to form a Tax Group.
What are Tax Groups?
Tax Groups are a group of companies that are treated as a singular tax paying entity. As such, UAE businesses can apply to form a tax group and choose to be taxed as a singular entity. In other words, the group of companies would be allowed to file their tax returns collectively. So, all the accounts of the companies within a tax group must be combined and unified when filing their taxes.
Conditions to form a Tax Group for Corporate Tax Purposes
The UAE Federal Corporate Tax allows for a parent company to form a tax group under the condition that it owns at least 95% of the shares and voting rights of any other company, whether directly or indirectly, within the tax group. Additionally, the following conditions must be met for a group of businesses to be eligible to form a Tax Group:
- The parent company must be entitled to at least 95% of the profits of any other company within the tax group.
- All the companies within the tax group must be managed and controlled in the UAE and considered a UAE resident entity.
- All the companies within the tax group must not be Exempt from Corporate Tax.
- All the companies within the tax group must not be a Qualifying Free Zone Business.
- All the companies in the Tax Group must have the same Financial Year.
- All the companies within the Tax Group must be using the same accounting standards to prepare their financial statements.
How will Corporate Tax in the UAE apply to Tax Groups?
As previously mentioned, tax groups are treated as a single taxable entity. Similarly, the tax group will be subject to Corporate Tax as if they were a single entity. So, the tax group would be subject to 9% Corporate Tax given that they passed the 0% tax rate threshold of 375,000 AED on their profits. The 0% Corporate Tax rate applicable to any taxable business will apply to the tax group with the same threshold of AED 375,000 regardless of the number of businesses within the tax group.
On the other hand, companies within a tax group can benefit from tax-free transfer of assets and funds within the group as long as the associated parties don’t leave the tax group within two years from the date of the transfer.
Grow Your business with AM Audit
If you are the owner of multiple companies or thinking of growing your business, we understand how overwhelming sorting all your business’s paperwork and filing your taxes can be. Your business’s paperwork may be confusing for some, but not for the accountants and auditors at AM Audit. Leave your accounting to the professionals and choose from AM Audit’s services including Auditing, Accounting, Consulting, and Corporate Tax Services.
