Corporate Taxation This month, the Federal Tax Authority (FTA) has introduced the Corporate Tax Guide CTGTGR1, emphasizing tax groups. The guide provides comprehensive insights into various aspects of tax groups, starting with the conditions for their establishment. Subsequent articles will delve into related areas.
Key Conditions for Establishing a Tax Group: An Overview
The FTA allows the parent company and its subsidiary/ies to apply for the formation of a tax group under specific conditions. Both entities must be resident juridical persons, with the parent company holding a minimum of 95% of the share capital, voting rights, and entitlement to profits and net assets of the subsidiary/ies. Exemptions apply to sole establishments, freelancers, and unincorporated partnerships.
Residency Criteria and Individual Assessment: Corporate Taxation
The residency condition involves evaluating an individual’s residency status as per the double tax treaty. Individuals deemed residents of other countries per the treaty are ineligible. Dual residency is permissible if the individual is solely recognized as a tax resident of the UAE. Non-resident foreign companies are not eligible.
Shareholding Evaluation and Voting Rights Assessment
The 95% shareholding condition is based on the nominal value of the paid-up or issued share capital. Voting rights must be assessed independently from legal share ownership, considering potential variations in founding documents and shareholders’ agreements.
Profits and Net Assets Entitlement: Corporate Taxation
The requirement of possessing 95% entitlement to profits and net assets necessitates separate evaluations. Even when certain profits are non-distributable, shareholders retain rights to them. The entitlement to net assets is examined during the subsidiary’s winding up.
Exclusions and Eligibility Criteria: Corporate Taxation
Entities such as government entities, government-controlled entities, natural resource businesses, public benefit entities, investment funds, and social security and pension funds are ineligible for tax group participation. However, taxable subsidiaries of government entities can establish or join a tax group independently.
Financial Year Alignment and Accounting Standards
The parent company and subsidiary must share the same financial year, with the option to request a modification if necessary. Uniform accounting standards, such as cash basis or accrual basis, and compliance with IFRS, IFRS for SMEs, or cash basis, are mandatory for all members of the tax group.
Benefits of Forming a Tax Group: Corporate Taxation
Business groups are encouraged to assess their eligibility for forming a tax group to streamline administrative processes and unlock various benefits, including the transfer of assets and liabilities, and the transfer of losses within the tax group.
Mahar Afzal, Managing Partner at Kress Cooper Management Consultants, provides insights into the conditions and considerations surrounding the formation of tax groups. The views expressed are the writer’s opinions and not the official stance of Khaleej Times. For further clarification, contact [email protected].
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