UAE Corporate Tax – The Pros and Cons of forming a Corporate Tax Group
02 March 2023
With the on-set of the Corporate Tax (CT) regime in the UAE, each licensee will need to obtain a CT registration and file an annual CT return. A registration option for corporate groups will be to form a CT Group. This allows the group to be covered by a single CT registration and file a single CT return. This is a similar concept to VAT grouping but the conditions for forming a VAT Group are more relaxed than that of a CT Group.
The key conditions for forming a CT Group are listed below:
- Only resident persons can form part of CT Group. Permanent Establishments (PE) or branches of foreign companies in the UAE cannot join a CT Group;
- Only juridical resident persons can join a CT Group. Natural persons and unincorporated JVs are ineligible.
- CT grouping is available only to parent-subsidiary relationships, where all of the following conditions are met:
1. Parent owns at least 95% shareholding of the subsidiary;
2. Parent owns at least 95% voting rights of the subsidiary; and
3. Parent is entitled to at least 95% of the subsidiary’s profits and net assets.
- Neither the parent nor the subsidiary is exempt from CT;
- Neither the parent nor the subsidiary is a Qualifying Free Zone Person;
- The parent and the subsidiaries must have the same financial year and prepare financial statements using the same accounting standards.
While forming a CT Group appears to be an efficient compliance option it is important evaluate whether firstly, the CT Grouping conditions are met and secondly, whether CT Grouping makes sense. Following, are a few of the important pros and cons associated with forming a CT Group.
Based on these pros and cons, businesses need to evaluate the cost of compliance obligations v. exposure in other areas to arrive at a calculated decision on whether to form a CT Group.
In addition to CT grouping provisions, there are also reliefs for ‘Qualifying Groups’, where the conditions are relaxed compared to those for a CT Group. Qualifying Groups are permitted to transfer assets and liabilities between their members at net book value. The main condition for a Qualifying Group is that one of the group members owns 75% or more of the other, or a third party owns 75% or more of both entities. Members of a Qualifying Group are required to obtain separate CT registration and file separate CT returns.
Corporate Tax in the UAE