𝐓𝐀𝐗 𝐆𝐑𝐎𝐔𝐏 𝐊𝐄𝐘 𝐅𝐄𝐀𝐓𝐔𝐑𝐄𝐒
𝐔𝐀𝐄 𝐂𝐎𝐑𝐏𝐎𝐑𝐀𝐓𝐄 𝐓𝐀𝐗 𝐋𝐀𝐖
On 31 January 2022, the UAE Ministry of Finance announced the introduction of Federal Corporate Tax (CT) in UAE w.e.f. 1 June 2023. While the UAE Federal Tax Authority (FTA) is finalizing the UAE CT regime, on 28 April 2022, it issued a public consultation document covering various aspects of the proposed law. The business community and other interested stakeholders are expected to provide their comments online at the prescribed link by 19 May 2022.
- UAE resident group of companies may elect to form a tax group and be treated as a single taxable person where the parent company directly or indirectly holds at least 95% of a subsidiary’s shares. UAE branches of companies within the tax group may be included.
- To form a tax group, neither the parent company nor any of the subsidiaries can be an exempt person or a Free zone person that claims exemption.
- Tax group’s will be treated as a single taxable person with the parent company responsible for the administration and payment of CT on behalf of the tax group.
- Group re-organization shall not be taxable under the UAE CT regime, subject to certain conditions.
Transfer Of Losses:
- Tax losses may be transferred to another UAE group company with profits, provided the companies are at least 75% commonly owned.
- Tax losses will be limited to 75% of the taxable income of the company receiving the transferred losses in the relevant period.
- No losses may be transferred from exempt companies or those which benefit from a 0% Free Zone CT regime.
- Intra-group transfer relief will be available for transfers of assets and liabilities between UAE resident companies that are at least 75% commonly owned, provided the asset/liability remains within the same group for a minimum of three years.
- The regime will exempt or allow for a deferral of taxation where a whole business, or independent parts of a business, are transferred in exchange for shares or other ownership interests. Any relief will be ‘clawed back’ if within three years of the restructuring, there is a subsequent transfer of the business to a third party.
- All Related Party transactions and transactions with Connected Persons will need to comply with transfer pricing rules and the arm’s length principle as set out in the OECD Transfer Pricing Guidelines.
- Transfer Pricing Regulations shall be applicable for transactions between domestic as well as foreign-related parties and needs to be at arm’s length price.
- Transfer Pricing Documentation Requirement shall include:
– Business will be required to submit Disclosure containing information regarding transactions with related parties and connected persons.
– A business will also need to maintain a Master and Local Files (with format and content as prescribed under OECD Base Erosion and Profit Shifting (BEPS) Action Plan 13), where arm’s length value of transactions with the related party would exceed a certain threshold.
Effect of forming a Tax Group under UAE Corporate Tax
The tax group is treated as a single taxable person. The parent company is responsible for the administration and payment of CT on behalf of the tax group.
To determine the taxable income of the tax group, the parent company will have to consolidate the financial accounts of each subsidiary for the relevant tax period and eliminate transactions between the parent company and each subsidiary group member.
For the period during which the entities are members of the tax group, the parent company and each subsidiary will be jointly and severally liable for the group’s CT. This joint and several liability can be limited to one or more named members of the tax group, with approval from the FTA.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)Associate Partner
Ahmad Alagbari Chartered Accountants