Corporate Tax Group registration benefits and disadvantages
The conditions and requirements for Corporate Tax group registration have so many differences with VAT group registration. In this article, we are focusing on addressing the questions that most of the business owners are asking.
- Who can apply and make a group for Corporate Tax purposes?
- Is the Corporate Tax group registration mandatory?
- What are the benefits of forming a Corporate Tax group?
- What are the disadvantages of forming a Corporate Tax Group?
- How will the filings happen in the Corporate Tax once the group is registered?
- When does the Corporate Tax group registration need to be cancelled?
Let us discuss this in detail.
1. Who can apply and make a group for Corporate Tax purposes?
The first thing you need to keep in mind is that if the same owner (individual) is holding common shares in 2 or more companies, you cannot create a Corporate Tax Group.
Below are the conditions for applying for a group registration under UAE Corporate Tax Law;
- The parent company and all subsidiaries that intend to create a tax group for Corporate Tax purposes should be juridical (companies) and resident persons. Do you want to know who is resident for UAE Corporate Tax purposes? Read here.
- The parent company must hold a minimum of 95% shares in each subsidiary, and must have a minimum of 95% eligibility for below:
- Shares
- Voting rights
- Profits
- Liquidation proceedings
This above eligibility can be either directly or indirectly. Example: Company A is the 100% shareholder in Company B, and Company B is the 100% shareholder in Company C. All 3 companies are eligible for applying for a Corporate Tax group, assuming all are resident persons.
- Neither of the companies is an exempt person. All the parents and subsidiary must not be exempt persons under the UAE Corporate Tax Law. Read here to know more about exempt persons
- Neither of the companies is a Qualifying Free Zone person. A Qualifying Free Zone person who is part of a group cannot become part of a tax group. Read here to know more about Qualifying Free Zone Person.
- Parent company and all subsidiaries who want to become part of a Corporate Tax group shall follow the same accounting period and the same accounting standards. We will explain at a later stage in this article why the authority has given these conditions for Corporate Tax Group registration.
Key point:-
The above conditions shall be satisfied by the parent and subsidiary entities throughout the relevant tax year in order to be eligible for keeping the group tax registration.
2. Is the Corporate Tax group registration mandatory?
Corporate Tax group registration is not mandatory, and even if all the above conditions are satisfied, companies can decide either to register or not to register as a tax group. One key point to keep in mind is that those companies that wish to apply for a Corporate Tax group shall obtain a stand-alone Tax Registration Number (TRN) before applying for a Corporate Tax group registration.
3. What are the benefits of forming a Corporate Tax group?
➦ Single tax return and fewer administrative complications
The Corporate Tax group companies are required to file a single Corporate Tax return. This will ease the administrative process of Corporate Tax.
➦ Arm’s Length Principle and Transfer Pricing Regulations
All the intercompany transactions between the companies in a Corporate Tax group need to be ignored while calculating the tax liability of a Corporate Tax group. This is beneficial for companies that have many intercompany transactions and avoid the compliance of the Arm's Length Principle and Transfer Pricing, up to a certain level.
➦ Losses set off with profits
Since the Corporate Tax group files a single return for all the companies within the tax group, one company’s loss, if any, will automatically get adjusted with the other company’s profit.
4. What are the disadvantages of forming a Corporate Tax Group?
➦ Single Threshold of 0% Tax Band
As the tax group is filing a single tax return for all the companies in the tax group, the 0% Corporate Tax for taxable income up to AED 375,000/- will be available on the group level. If more companies are in the Corporate Tax group, creating a tax group for Corporate Tax purposes may not be beneficial. If those companies are standalone, each company will get the band AED 375,000/-. All the other reliefs, like Small business reliefs, will be available and applicable to the group revenue/turnover/taxable income.
➦ Consolidated Financial Statement
Corporate Tax computation of a tax group will start from profit before the tax of the group. For this, all the companies in the tax group have to make stand-alone financial statements and prepare a consolidated financial statement for Corporate Tax purposes. This actually increases the compliance cost for the company for those who have having Corporate Tax group.
➦ Joint and several liabilities
All the members in the tax group have joint and several liabilities on Corporate Tax compliance and payment. Even if one of the members is not ready to pay the share of Corporate Tax, such an unpaid share will hold other members in the group responsible.
A wise decision shall be taken by all the business owners who are having corporate structure business in the UAE, whether to form a Corporate Tax group or not. Here, you require tax experts like Flying Colour Tax Consultant to analyze the business, transactions, pros and cons of tax groups, etc. and get the best outcome as a decision which will help in tax compliance as well as tax optimization.
5. How will the filings happen in the Corporate Tax once the group is registered?
Corporate Tax group is required to file a single Corporate Tax return for all the members in the group. The tax calculation starts from the profit before-tax figure mentioned in the consolidated financial statement of the group companies.
6. When does the Corporate Tax group registration need to be cancelled?
If the group is not satisfying the conditions for maintaining the Corporate Tax group, the tax group registration shall be de-registered. Example: If there are 2 companies in the Corporate tax group and the parent entity sold 20% of the shares of the subsidiary to a third party. Due to this, the shareholding percentage of the parent entity in the subsidiary has become less than 95%. In such situations, the group shall be de-registered and the companies shall file the stand-alone Corporate Tax returns.
To learn more about Advantages and Disadvantages Of Corporate Tax Group, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.