UAE CT Update| Ministerial Decision on Tax Group under UAE CT Law
July 13, 2023

Article 40 of the Federal Decree Law No. 47 of 2022 (‘the CT Law’) provides that, a Resident (Juridical) Person can make an application to the Federal Tax Authority (“FTA” or “Authority”) to form a Tax Group with one or more other Resident (Juridical) Persons subject to compliance of all the prescribed conditions. The Ministry of Finance (‘MoF’) has issued Ministerial Decision No. 125 of 2023 providing following conditions and detailed guidelines for forming a Tax Group under the CT Law.
- Ownership Requirements: For formation and continuity of a Tax Group, the conditions prescribed under the Article 40 (1) of CT Law are required to be met continuously throughout the relevant tax period. For complying with the ownership threshold, Share Capital shall mean Nominal Issued and Paid-Up Share Capital, or Membership or Partnership Capital of each Subsidiary, as may be applicable.
- Resident Person (Residency Conditions):
- Parent Company and Subsidiary(ies) forming members of the Tax Group shall be Tax Residents of UAE only and not of any another country or foreign territory under relevant international agreement in force in the State.
- Where a member of the Tax Group becomes a Tax Resident in another country or foreign territory the respective member shall be treated as leaving the Tax Group from the beginning of the relevant tax period in which it became a resident for tax purposes in such other country or foreign territory.
- A Foreign Juridical Person can also become member of the Tax Group, if its’ a Tax Resident of UAE subject to such a person being able to support by documentation that it is not a resident for tax purposes in that other country or foreign territory. Likewise, a juridical person that is incorporated or established or recognised under the laws of the UAE but which is effectively managed and controlled in other country or territory can also become member of the tax group subject to documentation proving that its’ not a tax resident of other country. The documentation for this purpose shall mean a confirmation issued by the relevant tax authority of that other country or foreign territory.
- Transactions prior to forming or Joining a Tax Group: Any Pre-grouping losses incurred by any member, to the extent such losses are related to transactions with other Group members (before becoming member of a Tax Group), shall not be considered as a Tax Deductible loss until such tax deductible loss is reversed in full.
- Date of Formation/ Joining of a Tax Group:
- Application to Authority for (i) forming a Tax Group, or (ii) joining an already existing Tax Group, or (iii) replacing an existing Parent Company by a new Parent Company (provided the new Parent Company complies with all the conditions prescribed from the beginning of the relevant tax period) shall be made before the end of the relevant tax period with in which the formation or joining of a Tax Group is requested.
- A newly established Company (a new Parent Company or a new Subsidiary) may join the already existing Tax Group, from the date of their incorporation.
- Assets, Liabilities and Financial Positions of Members: The Parent Company shall consolidate the financial results of each member of the Tax Group for the relevant tax period by (i) eliminating transactions between two or more members of the same Tax Group, and (ii) giving impact of valuation adjustments and provisions for transactions between members of the Tax Group (by making changes in accounting value of the relevant assets and liabilities where gain or loss has been eliminated).
- Relief for Pre-Grouping Tax Losses:
- During any relevant Tax Period, the lower of the two shall be considered for setting off the Pre-Grouping Tax Losses of a Subsidiary, from the Taxable Income of the Tax Group:
- (i) Attributable Taxable Income of the Subsidiary, in the Tax Group; or
- (ii) Amount equivalent to 75% of the Taxable Income of the Tax Group.
- Any pre-grouping tax loss of subsidiary(ies) shall be adjusted from the taxable income of the Tax Group, before adjustment of any tax loss suffered by the Tax Group are made during any relevant tax period.
- Where the amount of pre-grouping tax losses of Subsidiary(ies) to be set off from the taxable income of the Tax Group, is in excess of the monetary threshold prescribed for adjustment of tax losses, the Parent Company has to determine which Subsidiary’s pre-grouping tax losses are to be (a) adjusted during the relevant tax period, and (b) carried forward for adjustment in subsequent tax period.
- ALP, TP Documentation and calculation of Taxable Income: During any given Tax period, where any member (one or more members) of the Tax Group has (i) unutilized pre-grouping tax losses, or (ii) eligibility to claim Foreign Tax Credit, or (iii) eligibility to claim benefits under the applicable provisions of the CT Law, or (iv) unutilized pre-grouping carried forward net interest expenditure, then to calculate taxable income of the Tax Group, it is to be ensured that:
- Attributable income of each relevant Group Member is calculated according to Arm Length Principle; and
- Appropriate Disclosures of transactions and arrangements are made.
- Determination of Ownership Interest and Transfer of Tax Losses: For the purpose of transfers within a qualifying group and/ or transfer of tax losses, direct or Indirect ownership interest of minimum 75%, shall be determined on the basis of aggregation of assets and liabilities, after eliminating transactions between the Parent Company and each Subsidiary who are the members of the Tax Group.
- Business Restructuring: Where a member ceases to exist because of transfer of its entire business to another member of the Tax Group, the transferee member shall be deemed to exist till the date of transfer and the Tax Group shall continue to exist (Except in the case of two-member group, where subsequent to transfer of entire business by one member to the other member subsequent to which the first member ceases to exist, Tax Group ceases to exist on the date the transfer is effective).
The transfer of business (whole or in part) shall be considered to have been taken within the Group, where business is transferred by an existing member of the Group to a newly established juridical person, who become member of the Tax Group from the date of establishment of the new person.
- Income from Intra-Tax Group Transactions: Any income from transfer of one or more assets or liabilities from Intra-Tax Group transfer will not be considered to have arisen, for CT purposes, where neither of the members of the Tax Group (Transferor or Transferee) leaves the Tax Group within a period of two (2) years from the date of such transfer and the conditions prescribed for claiming (i) transfers within a qualifying group, or (ii) business restricting relief, as the case may be, are complied with.
In case, either of the member (transferor or transferee) leaves the Tax Group, the income so generated, shall be required to be considered for CT purpose in the relevant Tax period, in which the member leaves the Tax Group.
- Notification to the Authority: Notification to the Authority is to be made with in a period of Twenty (20) business days from the date a member (Subsidiary) leaves the Tax Group or Tax Group ceases to exist for non-complying with the conditions prescribed under Article 40 of the CT law or this decision.
- Financial statements on leaving/ cessation of Tax Group: Every Juridical Person on leaving or cessation of the Tax Group, as the case may be, shall prepare its financial statements on standalone basis by following/ adopting the same set of Accounting Standards and considering the value of relevant assets and liabilities as reported by the Tax Group, as the opening values of those assets and liabilities.
Key takeaways: The Decision mandates several operative aspects and considerations for formation/ alteration/ cessation of a tax group together with certain computational aspects for determining taxable income of a Tax Group.
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