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Monday, March 4, 2024

“Tax Group Chronicles: Transition from Establishment to Farewell in the UAE”-1

In our recent article, we delved into the essential conditions required for establishing a corporate tax group (tax group) in the UAE. Once these prerequisites are met, the parent company gains the option to create a tax group with its subsidiaries. This process involves a joint application submitted to the Federal Tax Authority (FTA), including details about the proposed initial tax period. Crucially, this application must be completed before the conclusion of the current tax period for which group formation is sought.

Flexibility in Formation: Determining Group Composition

While the typical commencement aligns with the specified tax period, the FTA retains authority to designate an alternative starting tax period, regardless of the application’s suggested date. In instances where multiple subsidiaries qualify for inclusion in the tax group, the parent company has the discretion to decide which subsidiaries to incorporate. After the FTA approves the application, the tax group is officially considered formed.

Parent Company’s Responsibilities: Ongoing Corporate Tax Compliance

Upon establishment, the parent company assumes responsibility for ongoing corporate tax compliance on behalf of the entire group. This encompasses various tasks such as managing new subsidiary applications, preparing consolidated financial statements, timely filing of tax returns, settling corporate tax liabilities, pursuing tax refunds, overseeing group registration and deregistration, and maintaining comprehensive documentation, including necessary clarifications to the FTA.

Changes in Tax Group Dynamics: Life Cycle Considerations

Throughout the tax group’s life cycle, changes such as member additions or departures and parent company replacements may occur. The effectiveness of these changes is determined by the start of the specified tax period in the application submitted to the FTA or as otherwise decided by the FTA.

Tax Payment Dynamics: Joint Liability and Compliance

Concerning tax payments, the group, treated as a single taxable entity, is liable to settle due taxes within nine months from the conclusion of the relevant tax period. Failure to pay the stipulated amount renders each group member jointly and severally liable for the outstanding tax and related penalties to the FTA.

Tax Deregistration: Evaluating Business Cessation in the Group Context

When a member’s business or business activity concludes, a tax deregistration application is mandatory. In the context of a tax group, the assessment of whether business activities have ceased is conducted at the group level. Deregistration is required only if the entire tax group concludes its business activities.

Mahar Afzal, the managing partner at Kress Cooper Management Consultants, provides insights in this comprehensive guide. Please note that the views expressed are the author’s opinion and not an official stance of Khaleej Times. For further clarification, you can reach out to him at mahar@kresscooper.com.

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