UAE: Corporate tax is applicable to the group on its entirety

Once a corporate tax group is registered, it is treated as a single taxable person for corporate tax purposes. The parent company is responsible for combining the financial accounts, calculating the overall taxable income, filing a single tax return, and paying the relevant tax to the Federal Tax Authority.

When consolidating the financial results of group entities for tax purposes, generally all intragroup transactions are eliminated. The obligation to eliminate transactions within the tax group also extends to the transfer of assets and liabilities among tax group members. However, if either party departs the tax group within two years from the date of the transfer, any gain or loss resulting from such a transfer may need to be considered at the transferor’s or transferee’s level unless the income is exempt or disregarded for corporate tax purposes under any other provision of the law like under the participation exemption, business restructuring relief, or qualifying group relief.

The provisions of the corporate tax law are applicable to the tax group on its entirety, unless explicitly specified otherwise in the law. For instance, instead of individual entities the group taxable income of up to Dh375,000 is subject to zero per cent corporate tax. Similarly, the tax group can qualify for small business relief upon fulfilment of the related conditions.

In determining the five per cent ownership interest necessary for eligibility for the participation exemption and assessing the acquisition cost of Dh4 million to qualify for the participation exemption, the combined ownership interests and acquisition costs of all tax group members are considered, as well as the ownership interests and acquisition costs held by external parties with whom any member of the tax group form a qualifying group. However, for the purposes of the ownership requirements for qualifying group relief and the transfer of tax losses, ownership is assessed only of the member of the tax group.

A taxable person has the option to exclude gains or losses associated with transfers within a qualifying group. This election must be submitted when filing the tax return for the relevant tax period. Once made, this election cannot be revoked. If a tax group chooses to make this election for qualifying group relief, it will apply to all members of the tax group, and it will continue to apply to those members even if they leave the tax group or if the tax group is disbanded.

A taxable person is permitted to carry forward a tax loss if there is continuity of ownership or continuity of business. For more than 50 per cent change in ownership, only the ownership interest in the parent company of the tax group is relevant. Should there be a change in ownership exceeding 50 per cent, the change in business activities of the tax group should be evaluated in its entirety.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above article is not an official view of Khaleej Times but an opinion of the writer. For any clarification, please feel free to contact him at mahar@kresscooper.com.