Companies in the UAE must fulfil certain conditions to transfer tax losses within a group
A Tax Group is considered to be one Taxable Person. Thus, there is just one combined Taxable Income for the Tax Group. When a member of the Tax Group experiences a tax loss on its own and another member of the Tax Group realizes positive taxable income, the Tax Group's consolidation procedure automatically offset the results.
Under certain other circumstances, tax losses from one UAE group company may be used to offset the taxable income of another UAE group company in cases where there is at least 75% common ownership.
The following requirements must be fulfilled by companies in the UAE in order to transfer a portion of their tax losses from one business to another during the same tax period:
- All companies must be resident juridical persons, meaning they must be separate legal entities that are incorporated or effectively operate and controlled in the United Arab Emirates.
- The parent company must at least directly or indirectly own;
o 95% of the share capital of each subsidiary
o 95% of the voting rights of each subsidiary
o 95% of the profits and net assets of each subsidiary. - Any company in the group cannot be a qualifying free zone person or an exempt person.
- The same accounting period and accounting standards (IFRS or IFRS for small and medium-sized businesses) must be used by all the group's entities.
A Taxable Person may carry forward a tax loss if any of the following conditions is met.
• From the beginning of the period during which the Tax Loss is incurred until the end of the Tax Period during which the Tax Loss is applied as an offset against Taxable Income, the owners of the Taxable Person should consistently maintain at least 50% ownership.
• Tax losses can still be carried forward in cases where there is a more than 50% change in ownership as long as the same business is continued after the ownership change.
When certain conditions are met, tax losses from one tax period can be carried forward for future tax periods. When the requirements of utilisation are met, the tax losses that are carried forward can be deducted from the taxable income of later tax periods. Any tax loss carried over to a later tax period can be carried forward to even later tax periods, but it must be offset against the period's taxable income first, up to the 75% limit.
When a tax loss is transferred to a taxable person, including a tax group, the tax group can only use the tax loss after using its own tax loss and any pre-grouping tax loss, provided that the requirements for using the tax loss are fulfilled.
Businesses who meet the requirements will find it easier to comply with tax grouping. Any groups that want to think about tax grouping should evaluate their eligibility as well as the possible advantages and consequences for the group.
If you need any professional advise/ guidance regarding UAE CT and VAT, you may please contact our Tax Department:
Email: [email protected]
[email protected]
Phone: +971 454 13205
+971 457 52971
Website: www.chrysalisserve.com
Inquire now and click here > Get in touch with us
#taxableincome #corporate income tax #uaeintroduced #naturalresources #addedtaxvat #corporatetaxrate
#ministryoffinance #businessintheuae #paytaxes #documentationrequirements #taxresidency #abudhabi
#foreignbanking #taxlaw #mainlanduae #taxauthorities #businessprofits #samplepersonalincometaxcalculation
Want to set up a business in the UAE? Calculate your business setup cost today!