As the UAE implements its new Corporate Tax regime effective from June 1, 2023, one of the key planning strategies available for businesses is the formation of a “Tax Group.” Tax grouping allows multiple entities under common control to be treated as a single taxable person for corporate tax purposes. This can significantly simplify compliance and potentially reduce the overall tax liability of a business group.
However, forming a tax group is not automatic. There are specific eligibility criteria, conditions, and ongoing obligations that must be met under UAE law. In this blog, we explore in detail the rules governing the formation of a tax group, the strategic benefits, and how businesses can leverage this structure effectively.
Need expert help setting up a tax group or managing corporate tax in the UAE? PEAK Business Consultancy Services provides comprehensive tax advisory services, including group structuring, tax return filings, and compliance management tailored for businesses operating across the Emirates.
1. What Is a Tax Group?
Under UAE Corporate Tax Law, a Tax Group refers to a parent company and one or more subsidiary companies that are treated as a single taxable entity. The group files a single consolidated corporate tax return and calculates tax on the aggregate profits of all members.
This structure helps businesses centralize their tax compliance and potentially offset losses of one group company against the profits of another, minimizing overall tax liability.
2. Key Benefits of Forming a Tax Group
- Single Tax Return Filing: Simplifies tax compliance by allowing the group to file one consolidated return instead of separate returns for each entity.
- Intragroup Transactions Ignored: Transactions between members of a tax group are disregarded for corporate tax purposes.
- Tax Loss Offset: Losses in one group company can be offset against profits in another, reducing the overall tax burden.
- Administrative Efficiency: Reduces complexity in compliance, recordkeeping, and dealing with tax authorities.
Want to assess if tax grouping is right for your business? PEAK Business Consultancy Services can help evaluate your group structure and implement the most tax-efficient strategy.
3. Eligibility Criteria for Forming a Tax Group
To form a tax group under UAE Corporate Tax Law, the following conditions must be met:
- Parent-Subsidiary Relationship: The parent company must hold at least 95% of the share capital, voting rights, and entitlement to profits and net assets of each subsidiary.
- All Members Must Be UAE Resident Persons: Both the parent and all subsidiaries must be resident juridical persons incorporated or effectively managed in the UAE.
- Same Financial Year: All members of the tax group must follow the same financial year and prepare financial statements using the same accounting standards.
- Not an Exempt Person: None of the entities should be an exempt person (such as a government entity or charity) under corporate tax law.
- Not a Qualifying Free Zone Person: If any member is claiming Free Zone tax benefits (0% on qualifying income), it cannot be part of the tax group.
4. Formation Process and Approval
Forming a tax group requires formal approval from the Federal Tax Authority (FTA). The parent company must submit a joint election on behalf of itself and each subsidiary wishing to join the group. The FTA will assess whether the conditions are met before approving the group status.
Once formed, the parent company becomes responsible for fulfilling all tax obligations on behalf of the group, including registration, filing returns, and paying taxes due.
Need help with the tax group application process? Contact PEAK Business Consultancy Services for end-to-end support on FTA registration, eligibility evaluation, and documentation.
5. Limitations and Compliance Obligations
While tax groups offer several advantages, they also come with specific compliance responsibilities:
- All members must submit audited financials (if required by law).
- The group must maintain internal records of intragroup transactions.
- Corporate tax payment obligations rest solely with the parent entity.
- Changes in shareholding or group structure must be reported promptly to the FTA.
Also, members that leave a tax group may trigger tax implications, such as the need to recalculate prior returns and restate asset values.
6. Can Free Zone Companies Join a Tax Group?
Generally, entities claiming Free Zone benefits are not allowed to be part of a tax group unless they are willing to forgo their 0% corporate tax rate and meet all standard tax obligations.
This makes tax grouping more suitable for mainland businesses or Free Zone entities with taxable income that doesn’t qualify for Free Zone incentives.
7. Common Scenarios for Tax Grouping
- Retail groups with multiple branches across Emirates under separate entities
- Holding companies managing subsidiaries in logistics, services, or tech
- Real estate developers with project-based SPVs
- Family-owned businesses with multiple legal entities
Grouping allows these companies to consolidate profits, streamline taxes, and reduce administrative overhead.
Conclusion
Tax grouping under UAE Corporate Tax Law is a powerful tool for businesses that operate through multiple legal entities. By consolidating tax obligations and simplifying compliance, it offers both financial and operational advantages. However, the eligibility requirements are strict, and ongoing compliance must be maintained.
Interested in forming a tax group? Let PEAK Business Consultancy Services be your partner in structuring, compliance, and communication with the FTA. Our experienced tax professionals guide businesses across industries through the entire process of corporate tax implementation, grouping, and optimization.
Visit www.peakbcs.com today and schedule a free consultation to explore whether forming a tax group is right for your business.
