In order to meet global standards, the UAE implemented a federal business tax on June 1, 2023. The tax law’s provision on tax group structures is a crucial feature. The two categories of groups defined by the UAE CT framework are the qualifying group and the tax group. Qualifying groups enable partial consolidation, and the tax group is recognized as a single taxable organization and allows full consolidation.

Each entity must have at least 75% direct or indirect ownership held by an individual in order for two or more entities to establish a qualifying group. It is not essential to get authorization from the Federal Tax Authority to make a qualifying group. Transferring assets and tax losses between group members at book value without recording achievements or losses is one of the major benefits.

However, depending on their particular results, each member will keep filing tax returns on their own. Thus, although qualifying groups provide certain benefits, full consolidation is not accessible. Because a tax group allows full horizontal consolidation, it provides more substantial benefits. In order to make a tax group, many limitations are applicable. To be eligible for a tax group, a corporation must either directly or indirectly possess at least 95% of the voting rights of other entities. If you feel all these things are a headache, you can definitely outsource tax preparation services and others.

For the firms to be considered a qualifying group, they have to go through the following criteria:

• They have to be either permanent residents of the UAE or have a spot of business there.
• Each company in the group must have at least 75% of its voting rights and share capital controlled by another firm.
• Every business must use the same accounting guidelines and go for the same fiscal year when preparing its financial accounts.
• None of the group’s firms are exempt from CT or qualified free zone people.

After a qualifying group is created, the CT is computed using the collective profits of the group as opposed to the profits of each individual firm. The group may save a lot of cash on taxes as an outcome of this, particularly if some of the participating firms are losing cash.

Any liabilities or assets held in the capital account and transferred between members of the qualifying group will be treated as having been transferred at net book value if an election has been made regarding the transfer of the liabilities or assets under the qualifying group provision, as there may not be a loss or gain.

Unless the liabilities or assets are sold to a third party, depreciation or amortization will not be added in calculating the taxable income. Instead, it will be applied to the relative amount of the loss or gain incurred by the transferor, which was exempt from corporate tax due to the application of the relief under the qualifying group. The majority of businesses in this context outsourcing tax preparation services and explore free time on other matters by leaving these tasks to them.

Qualifications for Establishing Tax Groups

Strict qualifying needs outlined by the UAE CT law must be met to make a tax group. The degree of ownership and control among entities is a major prerequisite. As required by law, to make a tax group:

• At least 95% of the voting rights and share capital of other entities that a company plans to incorporate in the tax group must be held by it, either directly or indirectly.
• Both at the beginning of the tax term and at its conclusion, the 95% voting rights requirement must be met.
• The company may directly own the voting rights by way of shareholding or indirectly via other things that it handles.
• Even if they are in the same field, entities that are completely owned by people are not enabled to create tax groups. It is very crucial to have group ownership.

Under the UAE CT Law, not all businesses can make a qualified group. Businesses like real estate investment trusts, qualifying free zone persons, and exempt persons are not qualified. In addition, even though they go through the prerequisites, businesses like those that engage in illicit activity, those facing financial difficulties, and those with a track record of breaking tax laws might not be capable of making a qualifying group.

In order to make a tax group, authorization from the UAE’s Federal Tax Authority (FTA) is needed. Businesses must apply to the FTA to be approved, offer details about their member entities, and satisfy the demands for eligibility. Tax outsourcing plans for a company can save them from these complicated tax matters and make processing easy.

Before approving a tax group, the FTA is likely to take ownership structure, commercial rationale for consolidation, and legitimate business purpose into account. Ad hoc agreements made purely for tax reasons might not be approved. Firms that satisfy certain criteria might profit from several benefits mentioned by the UAE CT Law. These benefits include the capacity to minimize their complete tax obligation, ease their tax filing process, and maximize their financial reporting.

For more details, get in touch with the specialists at HTIC Global if you’re thinking about starting a qualifying firm. Partnering with a certified expert like HTIC can definitely assist you in making sure that your business is set up to profit from the formation of a qualifying group.

How Can We Help You?

One of the top accounting and auditing firms in the UAE, HTIC Global, employs a team of qualified professionals who are intelligent in all applicable tax rules, particularly those pertaining to the recently implemented corporate tax. Our team can advise your firm to promise adherence to CT laws and help make a strict tax structure that will keep your firm on the right track and offer all the reliefs and benefits. Get a customized and specially made service package for your business in the UAE from the top accounting and auditing team.