UAE tax groups
The UAE Corporate Tax Regime introduced the concept of “Tax Groups” for Corporate Tax purposes. Though the concept of Tax Groups is not new as it already applies for VAT Regulations in UAE, one must understand that the governing provisions under the Corporate Tax Regime applicable for Tax Groups is far more stringent as compared for VAT purposes. It is significant to note here that a Tax Group for Corporate Tax purposes is different from Tax Group for VAT purposes.
The FTA recently issued a corporate tax guide on Tax Groups with an intent to provide better clarity and understanding of the tax provisions relating to Tax Groups. The Guide is exhaustive in terms of the several interesting examples that it offers, designed to reduce the ambiguity in applying the said provisions.
Article 40 of the Corporate Tax Law allows Companies under common ownership to form Tax Groups, subject to meeting certain conditions. Tax Group will be treated as a single Taxable unit thereby offering many advantages in terms of:-
- reduced compliance burden for individual companies by consolidating accounts;
- eliminating intra group transactions,
- increasing flexibility in utilisation of tax losses; and
- not requiring to comply with the Transfer Pricing Regulations and arm’s length principle except in certain circumstances.
Whilst forming Tax Group looks very lucrative, there certain limitations which must also be considered by Businesses while evaluating the option to form Tax Group. For instance the corporate tax thresholds (i.e 0% Taxable Limit of AED 375,000 and SBR limit of AED 3 million) will be applied on the taxable income of the Tax group rather than to the individual members of the Tax Group. Thus the decision to form a Tax Group will need to be assessed on case to case basis considering the group structure, the benefits and value addition that is likely to accrue to the business group in light of opportunity cost involved.