Here we will discuss the concept of tax groups in the UAE CT (corporate tax) regime as explained in the consultation document, released by the MOF.

The consultation document talks about two types of groups.

1. Tax group - Those who have one registration and file a single return as a group. For this case, 95% of the group companies must be commonly owned. Which is essentially wholly owned.

2. Group - Those who can take benefit of the transfer losses between group companies. However, in this case each entity may have separate registrations and file returns accordingly. For this case, 75% of the group companies must be commonly owned.

Who is allowed to form a Tax Group?

As per the consultation documents we can see that the following are the conditions of being part of a tax group.

1) Parent company holds 95% shares and voting rights of the members

2) All group members must have the same financial year end

3) Parent company or member of the group should not be exempt from corporate tax

4) Parent company or member of the group should not be a freezone company that is taxed at 0%

5) The parent company and member companies must sign a notice and submit it to the FTA

Branches of the parent company or subsidiaries are also allowed to be part of the tax group.
                                                     

What does it mean to be part of the tax group for CT?

1) The parent company is responsible for all the administration and the payment of the tax.

2) The parent company must consolidate the financials of the group. Intercompany transactions must be eliminated.

3) All the members of the tax group (including the parent company) will be jointly and severally liable for the Corporate tax payable.

What are the conditions to transfer losses between Group companies?

This can be done in the case the following conditions are met -

1) 75% of the company must be commonly owned.

2) the company is not exempt from corporate tax

3) The company is not a free zone company with 0% CT benefit.

4) The total loss that is offset will not be more than 75% of the taxable income of the company receiving the transfer.

We can see from these conditions that, they are not as strict as the “Tax Group” conditions

Gain or loss to be accounted for transfer of assets and liabilities between Group Companies?

In the case of companies that are at least 75% of commonly owned, any transfer of assets and liabilities can be transferred at net book value, and the gain or loss on the same will not be transferred.

If any of the conditions ceased to be met, then the period in which this happens, the gain or loss need to be considered.

What happens in the case of a merger or acquisition?

Restructuring Relief exists for companies that are acquired, merged or restructured, an exemption for the deferral of the corporate tax payment will exist.

In the case of an acquisition, the acquiring company will continue with the transferor’s existing tax basis in the transferred assets and liabilities. No gains or losses need to be taken into account as the tax net book value needs to be transferred.

However, any relief given will be clawed back if there is a subsequent transfer within 3 years of the restructuring. So the acquiring company needs to hold on the the company for a minimum of 3 years.

From the above, we can get a bit more clarity on how tax group companies would be treated in the new corporate tax regime that is to be implemented in the UAE.