Introduction
According to Article 40 of the UAE Corporate Tax Law, the Ministerial Decision of the UAE has established specific standards for the Tax Groups.
What are the requirements for ownership?
To create or keep the Group, it must continuously satisfy the conditions outlined in Article 40(1) of the UAE Corporate Tax Law for the entire Tax Period that applies.
What is a capital share?
The term “share capital” refers to the nominal value of the shares that have been issued and are completely paid up, as well as the capital that has been invested in the memberships or partnerships of each distinct subsidiary.
Permanent Individual
Unless otherwise specified in a relevant international agreement, the Parent Company and the Subsidiary must be legal entities that are recognised as residents for tax purposes only in the UAE and not in any other country or foreign territory.
To be considered as having left the Group:
An individual who becomes a resident of another nation or foreign territory is assumed to have left the Group at the start of the Period.
Upkeep of Documents:
A foreign legal entity that is recognised as a Resident Entity or a legal entity that is established or acknowledged under the applicable laws of the State but is effectively managed and controlled in another country or territory, must maintain supporting documentation to demonstrate its Non-Resident status for tax purposes in the aforementioned country or foreign territory.
What will the documentation contain?
The documentation must contain at least one of the following:
A declaration given by the nation indicated above or another foreign territory’s applicable tax authority.
A declaration made by the necessary, competent authorities to support the UAE’s implementation of the pertinent, active international agreement.
Rules for Transactions Before Forming or Joining a Tax Group
When a member has recognised a deductible loss in a Tax Period for transactions prior to joining or forming the Group, transactions between those members are not to be eliminated until such deductible loss is fully reversed.
Transaction is not stopped:
When calculating the Group’s Taxable Income, the Group will include any income connected to a transaction if it is not eliminated. It will be up to the amount of the deductible loss that was previously written off before joining or creating the Group, and it will be for the Tax Period in which that income arose.
Date of a Tax Group's Formation or Admission
An application must be submitted to the Authority to propose the establishment or joining of a Group prior to the end of the Tax Period in which it is requested.
This will also hold true if a new Parent Company steps in to replace an old one. The New Parent Company shall comply with the requirements set out in Article 40.
Moving The Company to another:
The other member will replace the parent company as of the transfer’s effective date if a parent company transfers all of its operations to another member of the same group and ceases to exist as a result of the transfer.
A newly created legal entity may join an existing Group as of the date of formation if it falls into one of the following categories, with the exception of the conditions in Clause (1) of this Article:
An unestablished subsidiary
A new Parent Company that replaces the existing Parent Company of the Group.
Member's, Assets, Liabilities, and Financial Positions
The following are the transactions that must take place between the Parent Company and each Group subsidiary:
Deals involving two or more subsidiaries that fall under the same tax category.
The exchange of goods or services between two or more subsidiaries that fall under the same tax category.
No gain or loss occurs:
Any adjustments to the accounting values of the relevant assets and liabilities that may have resulted from the gain or loss must be taken into account when a gain or loss from a transaction involving members of the same Group is eliminated.
Tax group relief from pre-grouping tax losses
In order to increase the efficiency and clarity of the law, it emphasises the alleviation of pre-grouping tax losses. It decides how tax losses are used inside a group.
Offsetting the losses from the pre-grouping tax:
The pre-grouping tax losses that may be applied to a group’s taxable income during a particular tax period will be calculated using the lesser of the two values below:
The portion of the tax group’s taxable income that can be linked to a specific subsidiary.
The eligible tax loss is applied to lower the tax group’s taxable income for the corresponding tax period.
In circumstances where the determination of taxable income for a tax group results in a tax loss carried forward to subsequent periods, any applicable pre-grouping tax losses must be applied first to the taxable income of the tax group in that period before applying other carried forward tax losses of the group.
Losses from Subsidiary Taxes:
If the total pre-grouping tax losses available for use in a tax period exceeds the amount specified in Clause (1) of this article, the parent company is responsible for determining which subsidiary’s pre-grouping tax losses will be carried forward by the group.
The rules outlined in Article 37 of the Corporate Tax Law also apply to pre-grouping tax losses.
The Arm's Length Principle and Transfer Pricing Documentation Requirements
When calculating the total amount of taxable income that can be attributed to one or more Group members, the following elements must be taken into account:
In the event that a Group member has unused Pre-Grouping Tax Losses.
when one of the Group members earns money that is eligible for the Foreign Tax Credit.
If one of the group members is given the mentioned business tax benefits.
If one of the Group members has Pre-Grouping Net Interest Expenditure that has been carried over but hasn’t yet been utilised.
How Taxable Income is Calculated by Tax Group:
The Team has to
Determine the taxable income that can be attributed to each applicable Group member under Article 34 of the Corporate Tax Law.
Completely disclose any information on transactions and agreements between the relevant members as well as between the relevant members and their Related Parties and Connected Persons that the Authority demands by notice or decision.
Choosing the ownership stake to transfer when transferring Tax Losses
By adding the assets and liabilities of the Parent Company and its Subsidiaries, one can establish ownership interest to meet the ownership requirements and determine the direct and indirect ownership interest of members belonging to the same Group.
Streamlining the Business Restructuring of Tax Groups
The actions listed below are meant to facilitate corporate reorganisation between Tax Groups:
If a member of the group decides to transfer all of its operations to another member of the same group, the transferring member will be recognised as a part of the group until the group dissolves. Therefore, the Group will keep going.
The Group will cease to exist on the day the transfer takes effect if there are only two members and one of them moves all of their business to the other, making the transferring member obsolete.
Relocation within the Group:
If the newly created legal entity joins the current Group, a member of the Group’s transfer of all, some, or a portion of its assets to the new company will be viewed as an internal transaction inside the Tax Group.
It is important to note that choosing Business Restructuring Relief is not required under the situations listed in Clauses (1) and (2) of this Article.
Revenue from Internal Transfers and Business Restructuring-Related Deals
In situations when members transfer one or more assets or liabilities, the income associated with such transfers shall be considered as if it had not been taken into account for Corporate Tax purposes.
If the conditions above are met, any income that wasn’t considered in relation to the transfer under Clause (1) shall be subject to the rules of Article (42) of the Corporate Tax Law.
Notification of Subsidiary Leaving or Terminating Tax Group Status
If a Subsidiary elects to quit it or terminates because it no longer meets the requirements under Article 40 of the Corporate Tax Law, the Tax Group must quickly notify the Authority within 20 business days of the date on which the prerequisites are no longer met.
Making Financial Statements Following the Termination or Dissolution of a Tax Group
When a Subsidiary leaves a Group or dissolves, its financial statements must be prepared in accordance with the Group’s accounting standards for both the departing Subsidiary and the former Parent Company.
They must also reflect in their financial statements both the recorded values of the relevant assets and liabilities as well as their initial values.
Conclusion
The UAE Ministerial Decision provides the Tax Groups with the much-needed clarity as well as further guidance on the subject.
