If you’re managing a group of companies under common ownership in the UAE, this blog will walk you through a powerful option under the Corporate Tax Law — the concept of a Tax Group. You’ll learn:
- What a tax group is and how it works
- Who qualifies to form one
- Key compliance requirements and conditions
- How tax computation and loss adjustments are handled
- What happens when entities enter or exit a tax group
Let’s dive in and make sense of how UAE tax law treats group entities as one unit for tax purposes.
Preface
The UAE’s Corporate Tax Law allows for something known as group taxation — an option for a parent company and its subsidiaries to be taxed as a single entity rather than separately. If structured correctly, this can reduce administrative load, streamline filings, and offer flexibility in managing losses across entities.
But, like all tax reliefs, the benefits come with a rulebook. This blog simplifies those rules and shows you exactly how a Tax Group works in practice.
Tax Group
At its core, a tax group treats a parent company and its eligible subsidiaries as one taxable person. This means just one tax return, one tax payment, and consolidated tax computation — all filed by the parent.
But it’s not open to everyone. To form a tax group, all of the following conditions must be met:
- The parent company and subsidiaries must be UAE-resident juridical persons.
- The parent must directly or indirectly hold at least 95% of:
- Share capital
- Voting rights
- Rights to profits and net assets
- Neither the parent nor the subsidiaries can be:
- An exempt person, or
- A qualifying free zone person
- All entities in the group must:
- Use the same financial year
- Apply the same accounting standards
A limited exception exists for government-owned parent companies.
This structure offers a cleaner, consolidated approach to tax reporting — but only if every checkbox is ticked.
The law also clarifies how tax groups relate to foreign ownership and application processes:
- Having a foreign ultimate parent does not disqualify UAE subsidiaries from forming a tax group — as long as an intermediary UAE parent sits between them.
- A foreign entity can be part of a tax group only if it’s managed and controlled from within the UAE — essentially, it must qualify as a UAE tax resident.
To set up a tax group:
- The parent and each subsidiary must jointly apply to the Federal Tax Authority (FTA).
- The tax group comes into effect from the start of the tax period mentioned in the application, unless otherwise specified by the FTA.
- A new subsidiary can join an existing group the same way — by application.
Compliance responsibility is split:
| Responsibility | Who Handles It |
| Corporate Tax Payment | Parent Company |
| Tax Registration/Deregistration | Each company individually |
| Filing of Tax Returns | Parent Company |
| Withholding Tax & Other Obligations | Joint and several liability applies (unless limited by FTA approval) |
In short: once you’re in the group, you share the rewards — and the risks.
There are three key situations when a tax group’s structure may change:
- When a subsidiary leaves the group:
- This requires FTA approval, following an application by both the parent and the leaving subsidiary.
- A subsidiary also automatically exits if it no longer satisfies the membership conditions.
- When the tax group ceases to exist:
- This usually happens when the parent company no longer qualifies.
- The group can also be dissolved through a formal application.
- When the parent company is replaced:
- If the current parent ceases to exist, a new parent (or subsidiary) can take over — provided it qualifies and is the legal successor.
The law allows flexibility, but not without proper paperwork and approval. All these changes are subject to FTA confirmation.
How is tax calculated in a group?
- The parent company must prepare consolidated financial statements that cover all group members.
- These statements must comply with UAE accounting standards.
- Taxable income for the group is computed based on this consolidated position.
A question that comes up often: What about transfer pricing rules?
Since intra-group transactions are eliminated during consolidation, those transactions don’t impact taxable income — which raises doubts about applying arm’s length pricing to them. However, in practice, if there are entities included in general purpose financials that aren’t part of the tax group, separate tax group financials must be created.
Key point: Only subsidiaries that meet the 95% condition can be in the tax group. Even if they’re in the consolidated accounts of the parent, they cannot be included in the tax group unless they meet this condition. So, financials for the tax group may differ from your usual audited reports.
Let’s talk about unutilized tax losses — how they’re treated when companies move in or out of the group.
Here’s how it plays out in different scenarios:
| Scenario | Treatment of Tax Losses |
| Subsidiary (with losses) joins a group | Losses can be set off, but only to the extent attributable to that subsidiary |
| New subsidiary joins group that has losses | Group losses cannot be used to offset income from the new subsidiary |
| Subsidiary leaves group | Group retains losses, except the subsidiary’s pre-group losses |
| Tax group ceases and parent remains taxable | Losses remain with the parent |
| Tax group ceases and parent is no longer taxable | Group losses (except pre-group subsidiary losses) are lost |
These loss rules reinforce one idea: track and document clearly. When a company joins or leaves, its tax history affects what reliefs remain available.
Even though group tax returns are consolidated, each member may still need to keep separate records. Why?
- To track unutilized tax losses correctly
- To determine what portion of income or expense belongs to which entity
- To comply if a member leaves the group
Another important note: if a group member transfers an asset to another group member and then leaves the group within 2 years, any previously excluded income must now be taxed. So short-term transfers within the group need to be handled cautiously.
Now, let’s summarize the two biggest takeaways:
- The AED 375,000 tax-free threshold applies to the entire group, not per company.
- Managing one tax return for multiple entities is a major compliance advantage — less paperwork, fewer deadlines, and centralized tax management.
Even if you don’t form a tax group, UAE corporate tax law still allows loss transfers between companies under common control (ownership of over 75%). That option is covered under a separate provision.
Recent Updates
Recent clarifications include rules on exceptional circumstances affecting tax residency and permanent establishment (PE) status.
For example, the presence of a natural person in the UAE won’t create a PE for a foreign company if all of the following are true:
- The person’s presence is due to public or private exceptional circumstances
- The situation was unpredictable
- The person had no intention to stay after it ended
- The company didn’t previously have a PE
- The company didn’t treat the person as a PE elsewhere
This protects companies from unintended tax obligations triggered by events beyond their control — like emergencies or force majeure.
Here are examples of what counts as exceptional circumstances:
Public events:
- Government-imposed health measures
- Travel bans or sanctions
- War or terrorist incidents
- Natural disasters or force majeure
Private events:
- Personal or family health emergencies
- Emergencies affecting relatives up to the fourth degree, including adopted or guardian relationships
These updates show that UAE tax law continues to adapt with fairness and clarity.
Final Thoughts
The tax group framework offers huge advantages: simplified filings, one tax threshold, and strategic loss utilization — all under one umbrella. But the entry ticket comes with fine print: strict ownership rules, aligned financial calendars, and consistent accounting.
Getting the tax group setup right can streamline your tax operations across multiple companies. But getting it wrong — even by missing a single condition — can nullify the benefits and expose you to penalties.
Whether you’re looking to reduce compliance load, simplify filings, or optimize loss usage, forming a tax group is a move worth considering — if the conditions align. Always evaluate the pros and cons carefully before making that decision.
