The UAE is all set to implement the first corporate tax groups.
The creation of “tax groups” will be the next significant set of updates for many business owners, even as the UAE tax authorities continue to publish updates on corporate tax.
Here, various companies run by one or more dominant shareholders get together to establish a tax group. The reduced administrative burden’ from filing corporation tax under a single consolidated return furnished by the parent firm will be the major benefit of doing so.
Introduction to UAE’s Tax Group Formation
The United Arab Emirates (UAE) is making significant strides in its corporate tax structure with the imminent introduction of ‘tax groups.’ This development is part of the country’s ongoing efforts to streamline its corporate tax system and make it more efficient and manageable for businesses.
Tax groups are essentially conglomerates of multiple businesses that operate under a single dominant shareholder or group of shareholders. This arrangement is designed to simplify the process of filing for corporate tax. Instead of each business entity filing its own tax return, the parent company files a single consolidated return on behalf of all the businesses within the tax group.
This approach offers several advantages. Firstly, it reduces the administrative burden on businesses, as they only need to file one tax return instead of multiple returns. This not only saves time but also minimizes the risk of errors that could potentially lead to penalties.
Secondly, it allows for better management and control of tax liabilities within the group. Since all the businesses are treated as a single entity for tax purposes, losses in one business can be offset against profits in another, potentially reducing the overall tax liability of the group.
The formation of tax groups is a significant step forward in the UAE’s corporate tax landscape. It demonstrates the government’s commitment to creating a business-friendly environment that encourages growth and investment. However, the process of forming a tax group requires careful planning and consideration, and businesses must ensure they meet all the necessary criteria and follow the correct procedures.
The Concept of Tax Groups
A tax group can be formed by a mid-sized developer with property and facilities management companies operating under the parent company. Similarly, a family business with multiple entities could also benefit from this arrangement. The common thread between these entities is shared ownership, making them eligible for tax group status.
One of the key advantages of forming a tax group is the reduction in administrative burden. Instead of each business entity having to file its own tax return, the parent company files one consolidated return. This not only simplifies the tax filing process but also reduces the risk of errors and inconsistencies that could arise from multiple filings.
Another significant benefit of tax groups is the ability to offset losses within the group. If one business within the group incurs losses, these can be offset against the profits of other businesses within the group. This can potentially reduce the overall tax liability of the group, leading to significant tax savings.
Furthermore, tax groups can help eliminate intra-group transactions, thereby reducing transfer pricing compliance. Intra-group transactions refer to transactions between businesses within the same group. By treating the group as a single entity for tax purposes, these transactions are effectively eliminated, simplifying the tax calculation process and reducing compliance requirements.
Approval Process for Tax Groups
The UAE tax authorities will need to approve any such grouping. At present, the Federal Tax Authority (FTA) has enabled the online corporate tax registration process for certain types of entities. However, the online registration process for tax groups has not been enabled yet. The individual entities forming a tax group need to get themselves registered first before applying for tax group registration.
Factors to Consider for Forming a Tax Group
The main reasons for any business entity to consider creating a tax group include the elimination of intra-group transactions, which results in reduced transfer pricing compliance, the setting off of losses between entities within such a tax group, and the reduced administrative burden, such as through the filing of a single consolidated return by the parent company.
Here are some key factors that businesses should consider when deciding whether to form a tax group:
Shared Ownership
The first and foremost factor to consider is the ownership structure of the businesses. To form a tax group, the businesses must have a common dominant shareholder or group of shareholders. This shared ownership is what allows the businesses to be treated as a single entity for tax purposes.
Intra-group Transactions
One of the main benefits of forming a tax group is the elimination of intra-group transactions for tax purposes. This can simplify the tax calculation process and reduce compliance requirements. However, businesses should consider the volume and complexity of their intra-group transactions to determine whether this benefit would be significant.
Profit and Loss Offset
Tax groups allow for the offsetting of losses within the group against the profits of other businesses in the group. This can potentially reduce the overall tax liability of the group. Businesses should consider their profit and loss forecasts to determine whether this benefit would be significant.
Administrative Burden
Forming a tax group can reduce the administrative burden of tax filing, as the parent company files a single consolidated return on behalf of all the businesses within the group. However, businesses should consider the resources required to manage the tax group, including the preparation of the consolidated tax return.
Regulatory Compliance
Businesses should also consider the regulatory requirements for forming a tax group. This includes understanding the eligibility criteria, the application process, and the ongoing compliance requirements. It’s important to ensure that the businesses can meet these requirements before deciding to form a tax group.
The Current Status of Tax Group Registration
According to industry sources, updates and registration of the first tax groups under the corporate tax regime could happen any time now. Registration for the UAE corporate tax is happening at a brisk pace. The UAE’s corporate tax regime came into effect on June 1.
The Importance of Parent Company Structure
Big corporate entities in the UAE operate under the parent company/holding company structure. However, for smaller family or individual-owned businesses, the parent company structure might still be absent. Forming a tax group is an option and not mandatory for any group of entities fulfilling the condition given under clause 1 of Article 40. These entities should consider forming one if they plan to use the tax group provision.
In Summary of the News
The United Arab Emirates (UAE) is preparing for the formation of ‘tax groups’, where multiple businesses under a single dominant shareholder can consolidate their tax filings. This reduces administrative burdens and allows for offsetting losses between entities. The Federal Tax Authority (FTA) must approve these groups, and while the online registration process for individual entities is available, the process for tax groups is not yet enabled. The UAE’s corporate tax regime, which came into effect on June 1, is seeing brisk registration. Entities have until the end of the tax period to apply for tax group status.
How can Adam Global help?
Adam Global, as a leading international business consulting firm, can provide comprehensive assistance to businesses considering the formation of a tax group in the UAE. Here’s how they can help:
Expert Consultation
Adam Global’s team of tax experts can provide detailed consultation on the benefits and implications of forming a tax group. They can help businesses understand the concept of tax groups, the potential tax savings, and the administrative implications.
Regulatory Compliance
Understanding and complying with the regulatory requirements for forming a tax group can be complex. Adam Global can guide businesses through this process, ensuring they meet all the eligibility criteria and comply with the ongoing requirements.
Tax Planning and Strategy
Forming a tax group is a strategic decision that can have significant tax implications. Adam Global can help businesses develop a tax strategy that maximizes the benefits of forming a tax group. This includes planning for the offsetting of losses within the group and managing intra-group transactions.
Administrative Support
Managing a tax group can be administratively intensive, particularly when it comes to filing a consolidated tax return. Adam Global can provide administrative support to businesses, helping them manage their tax groups effectively and efficiently.
Ongoing Support and Updates
Tax regulations can change frequently, and it’s important for businesses to stay up-to-date. Adam Global can provide ongoing support and updates to businesses, ensuring they continue to comply with the regulations and make the most of their tax group.
In conclusion, forming a tax group can offer several benefits for businesses, but it’s a decision that requires careful consideration and expert guidance. With their extensive experience and expertise in UAE tax law, Adam Global can provide the necessary support and guidance to businesses considering this strategic move.
Disclaimer – The information provided in this article is a summary and interpretation of the original content published by the Gulf News. For complete details and further information, please refer to the original article on the Khaleej Times website here.
