UAE: Formation to farewell: The tax group saga

Upon the establishment of a tax group, the parent company assumes the responsibility compliance requirements

By Mahar Afzal/Compliance corner

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Published: Mon 22 Jan 2024, 5:39 PM

In our last article, we have discussed the conditions to form a corporate tax group (tax group); and when the necessary conditions are fulfilled, the parent company has the option to establish a tax group with its subsidiaries. To do so, the parent company and each subsidiary wishing to be part of the tax group must jointly apply to the Federal Tax Authority (FTA).

This application must include the proposed initial tax period for the tax group. The request must be submitted before the end of the current tax period for which the formation of the tax group is being requested. While the tax group is typically formed from the beginning of the specified tax period, the FTA reserves the right to determine a different starting tax period for the tax group, regardless of the requested date in the application.

If the parent company and multiple subsidiaries satisfy all requirements to establish a tax group, the parent company is not obligated to incorporate all subsidiaries into the tax group. It is up to the management to decide which subsidiaries they wish to include in the tax group along with the parent company. The FTA will review the application and after their approval, the group will be assumed formed.

Upon the establishment of a tax group, the parent company assumes the responsibility for fulfilling ongoing corporate tax compliance requirements on behalf of the group. This includes tasks such as facilitating the application process for new subsidiaries seeking to join the tax group, preparing consolidated financial statements, filing tax returns within the specified timeframe, settling corporate tax payable, applying for tax refunds when applicable, managing the registration and deregistration of the tax group, and maintaining proper supporting documents and submitting necessary clarifications to the FTA.

Throughout the life cycle of the tax group, various changes can occur, including members joining or leaving the group and the replacement of the parent company. The effectiveness of applications to form the tax group, join or leave as a subsidiary, and cease the tax group will be from the start of the specified tax period in the application submitted to the FTA or from another tax period determined by the FTA. When a new entity joins the tax group, whether as a parent or subsidiary, the effective date will be the incorporation date of the company. If members fail to meet tax group conditions or become residents of another jurisdiction, the changes will be effective from the beginning of the tax period in which these changes occur. If a subsidiary transfers its entire business to another tax group member and ceases to exist as a result, this change will be effective from the date of cessation. Similarly, in a two-member group where one member transfers its entire shares to the other, and the new parent company replaces the old parent company, the change will be effective from the date of transfer.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants.
Mahar Afzal is a managing partner at Kress Cooper Management Consultants.

The group, being a single taxable person is liable to pay due tax within nine months from the end of the relevant tax period; and where the amount has not been paid, each group member is jointly and severally liable to pay the due tax and related penalties to the FTA.

If a taxable person’s business or business activity ends, they are obligated to submit a tax deregistration application. In the context of a tax group, the assessment of whether the business or business activity has ceased is conducted at the level of the entire tax group. If a member of the tax group stops their business or business activity, the entire tax group does not need to be deregistered unless the business or business activity of the entire tax group comes to an end. If all members of the tax group cease their business or business activities, the parent company must first request the FTA to cease the tax group, confirming the settlement of all corporate tax and administrative penalties and the filing of all due tax returns. Upon approval, the tax group will be deregistered for corporate tax purposes.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above 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.


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