With the introduction of Corporate Tax in the UAE under Federal Decree-Law No. 47 of 2022, businesses are exploring strategic options to manage their tax obligations efficiently. One such mechanism is the formation of a Corporate Tax Group—a provision that allows multiple entities under common ownership to be treated as a single taxable unit for UAE Corporate Tax purposes.
But is it the right move for your business structure? This blog explores the concept of tax grouping, eligibility criteria, benefits, drawbacks, and how to implement it correctly in compliance with the UAE Corporate Tax regime.
Need help deciding whether to form a tax group? PEAK Business Consultancy Services provides expert corporate tax structuring for UAE-based businesses, including group formation, filings, and compliance strategies.
What is a Tax Group?
Under UAE Corporate Tax Law, a tax group allows two or more resident juridical persons (such as LLCs or PJSCs) to be treated as a single taxable person. This means the group files one consolidated tax return instead of each entity filing separately. The parent company acts as the representative and handles all corporate tax matters on behalf of the group.
Eligibility Criteria for Forming a Tax Group
To form a tax group under the UAE Corporate Tax Law, the following conditions must be met:
- The parent company must own at least 95% of the share capital, voting rights, and profits of the subsidiary/subsidiaries.
- All group members must be UAE resident juridical persons.
- All companies must have the same financial year and use the same accounting standards.
- None of the companies in the group should be exempt or operate in a Free Zone with qualifying income (unless treated as taxable persons).
If these requirements are met, businesses can apply to the Federal Tax Authority (FTA) to form a tax group.
Key Advantages of Corporate Tax Grouping
Forming a tax group offers several benefits, especially for conglomerates or holding companies with multiple subsidiaries:
- Single Tax Return: Only one consolidated tax return is required for the group, reducing administrative burden.
- Offsetting Losses: Profits from one company can offset losses from another within the group, reducing the overall tax liability.
- No Tax on Intra-group Transactions: Eliminates tax implications for transfers of assets and liabilities within the group.
- Centralized Compliance: Easier to manage compliance and documentation through a single representative entity.
PEAK Business Consultancy Services can evaluate your organizational structure and help you determine whether tax grouping will minimize your tax exposure and improve compliance.
Tax Grouping vs Individual Filing
Here’s a quick comparison to help decide which is better for your business:
| Aspect | Tax Group | Individual Filing |
|---|---|---|
| Tax Return | One consolidated return | Separate return for each entity |
| Loss Offsetting | Yes, across group companies | Only within each entity |
| Compliance Burden | Centralized under parent | Distributed among all companies |
| Transfer Pricing | Not applicable within group | Applicable for intercompany transactions |
| Flexibility | Lower, must meet strict ownership rules | Higher, each operates independently |
Considerations Before Forming a Tax Group
While grouping may seem advantageous, businesses must evaluate the following:
- Whether all entities are eligible and meet the ownership test
- Impact on Free Zone companies, especially those with 0% tax benefits
- Complexity in aligning accounting periods and standards
- Liability: The parent company becomes responsible for tax compliance of the whole group
- Requirement to submit consolidated financial statements
Incorrect structuring can lead to rejection of the group application or future tax disputes.
How to Apply for a Tax Group in the UAE
The process of applying for tax grouping involves:
- Assessing eligibility of all entities involved
- Preparing a Group Registration Form via the FTA’s EmaraTax platform
- Submitting supporting documents, including legal ownership proof and financial statements
- Awaiting approval from the Federal Tax Authority
Once approved, the tax group is treated as one entity for corporate tax purposes and must submit a single tax return annually.
Important: All group members are jointly and severally liable for the group’s corporate tax obligations.
When Is Tax Grouping Not Advisable?
Tax grouping may not be ideal in cases such as:
- One or more entities have tax exemptions or Free Zone benefits that could be lost by joining a group
- Companies are not fully owned or do not meet the 95% requirement
- Entities operate on different accounting periods or reporting standards
- The compliance burden on the parent company outweighs the tax benefits
Always perform a detailed impact assessment before restructuring.
Conclusion
Corporate Tax Grouping in the UAE can be a powerful tool for tax efficiency, particularly for families, holding groups, and conglomerates with a network of companies. However, eligibility conditions are strict, and the compliance burden on the parent company is significant.
If your business is considering forming a tax group, it’s crucial to perform a full tax impact assessment and compliance readiness check. Missteps can lead to financial and regulatory consequences.
Looking to form a tax group the right way? PEAK Business Consultancy Services offers expert corporate tax consulting tailored to complex ownership structures. From feasibility analysis to documentation and FTA registration, we support your compliance and planning needs end-to-end.
Contact PEAK BCS today and discover how tax grouping can streamline your operations while optimizing your tax strategy.
