What is Group Relief?
Group relief is a relief from Corporation Tax. Businesses are able to create tax groups under the UAE corporate tax framework, which will go into force in June 2023.
The basic idea of group relief is to tax the economic unit - i.e a company, that gives rise to profits over a corresponding period. Similar to how an individual with various sources of income can be taxed, the income of a business’s various revenue streams can be grouped together and taxed. Companies create tax groups to restrict or fence responsibilities, which optimizes the expense of their total tax compliance. This offset would be subject to the group loss utilisation rules.
For example, a company with profits of AED 1,000 wholly owns a subsidiary which has losses of AED 100. In economic terms, there is one profit-making unit (the group) and it has profits of AED 900. Group relief is designed to ensure that the group pays tax on AED 900.
Scope of Group Relief
Group relief allows the transfer of losses between companies. It does not go as far as treating a group of companies as if they were a single company for tax purposes. The companies are still treated as separate legal entities for tax, and the framework operates on that basis.
The company which claims the losses of its internal companies is called a ‘Claimant Company’. The companies that ‘surrender’ their losses to the Claimant Company are called ‘Surrendering Companies’.
Criteria for Group Relief
Businesses that are liable to UAE corporate tax must determine if they are properly qualified to form a tax group. A business must meet specific conditions set out by the UAE Ministry of Finance (MoF) in order to establish a corporate tax group.
- The tax group’s members should all follow the same fiscal year.
- The parent organisation must own at least 95% of the voting rights and share capital of its subsidiaries.
- Especially when all of the group members are UAE residents, companies can create a tax group.
- A free zone business that enjoys the 0% corporate tax rate or an exempt person can be a part of a tax group.
- If a subsidiary is indirectly held by the parent firm and other subsidiaries possess at least 95% of its shares, the subsidiary could join a tax group or if it is a UAE branch of the parent firm or one of its subsidiaries.
Requirements for Group Relief
- At least 75% of UAE group enterprises are held collectively.
- No loss transfers from businesses that are immune or gain access to the 0% Free Zone CT system are permitted.
The overall tax loss offset may not exceed 75% of the applicable period’s taxable income of the entity obtaining the transferred losses. Balance tax losses can be carried forward indefinitely, provided certain conditions are met.
UAE tax groups would be able to file a single return for the entire group.