UAE: Corporate tax guide on tax groups
Eligibility, formation, tax compliance, and how a tax group's taxable income is determined on a consolidated basis
Eligibility, formation, tax compliance, and how a tax group's taxable income is determined
The UAE federal tax authority (FTA) has issued a guide on corporate tax for tax groups, which are made up of two or more juridical resident persons. The guide covers eligibility, formation, tax compliance, and how a tax group's taxable income is determined on a consolidated basis.
Key points include:
- To form a tax group, members must have the same tax period. If not, they need to align their tax periods through an application to the FTA.
- Separate audited financial statements for each member of a tax group are not necessary, even if a member's revenue exceeds AED 50 million (approximately U.S. $13.6 million).
- All members of a tax group need to use a single accounting policy to prepare their financial statements.
- The guide clarifies timelines for notifying the FTA about various changes within a tax group, such as formation, joining, exit, replacing the parent company, and cessation.
- The parent company of the tax group has certain responsibilities, including electing to exclude the net income of foreign permanent establishments held by the tax group.
- The parent company will compute the taxable income by consolidating the financial results, assets, and liabilities with all subsidiaries. Transactions between the parent company and any subsidiary or between the subsidiaries that are part of the tax group will be eliminated.
- Expenditure is deductible if it is incurred wholly and exclusively for the purposes of the taxable person’s business that is not capital in nature. In the case of a tax group, expenditure is deductible even if incurred wholly and exclusively for the business(es) of other member(s) of the tax group.
- Ownership and business continuity conditions must be met for tax losses to be carried forward and utilized by a taxable person. In the case of a tax group, only the ownership interest in the parent company is relevant.
- The guide also covers the determination of profits of foreign permanent establishments, which must be consistent with the arm's length standard.
Read a January 2024 report prepared by the KPMG member firm in the UAE
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