LMKG Chartered Accountants

Group Tax Formation

A) Key Considerations

  • To form a Tax Group, an application shall be made to FTA by the Parent & Subsidiary seeking to become members of the Tax Group.
  • A Subsidiary can join an existing/leave Tax Group following submission of an application from the beginning of the Tax Period specified in the application or any other Tax Period determined by the FTA.
  • Tax Group shall be treated as ceased from the beginning of the Tax Period specified in the application or where conditions to form a Tax Group ceases to met.
  • Newly established Parent Companies or Subsidiaries can join an existing Tax Group from the date of their incorporation, and do not have to wait until the beginning of the following Tax Period.
  • A Subsidiary must leave an existing Tax Group if:
  • an application to leave the Tax Group by the Parent Company and that Subsidiary is approved by the FTA; or
  • if the Subsidiary no longer meets the relevant conditions to remain in the Tax Group
  • The Parent Company of a Tax Group can make an application to replace Parent Company without discontinuation of the Tax Group.

B) Conditions for forming Tax group:

  • Only Resident Persons can form part of CT Group.
  • Only Juridical Persons can form part of CT Group
  • Parent is entitled to at least 95% of subsidiary’s;
  • shareholding
  • Voting Rights
  • Net Asset
  • Profits
  • Neither Parent nor Subsidiary is a Qualifying Free Zone/Exempt Person
  • Parent &Subsidiary using same Accounting Standards & Financial year.

C) Taxable Income of a Tax Group

  • To determine the Taxable Income of a Tax Group, the Parent Company must consolidate the financial accounts of each subsidiary for the relevant Tax Period by the way of aggregation.
  • It must eliminate transactions between the members of a Tax Group, including adjustments from valuations, and transactions between two or more members of the same Tax Group.
  • The unutilised Tax Losses of a subsidiary that joins a Tax Group will become carried forward losses of the Tax Group.These are known as “pre-grouping Tax Losses”. Pre-grouping Tax Losses that are carried forward can only be used to offset the Taxable Income of the Tax Group insofar as this income is attributable to the subsidiary which brought the Tax Losses into the Tax Group.
  • The pre-grouping Tax Losses that are to be carried forward to be utilised in the Tax Group cannot exceed the 75% Tax Loss relief limit. The limit will be applied to the Taxable Income of the Tax Group.
  • If a new Subsidiary joins an existing Tax Group, the unutilised Tax Losses of the existing group cannot be used to offset the Taxable Income of the new Subsidiary.
  • If a Subsidiary leaves a Tax Group, the Subsidiary will retain any unutilised pre-grouping Tax Losses brought into the Tax Group, but any Tax Losses incurred while it was a Subsidiary of the Tax Group will remain with the Tax Group.

The 75% cap on the utilisation of carried forward Tax Losses and the limitation on Tax Losses carry forward are applicable at the level of the Tax Group

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