Two UAE-resident juridical persons want to form a Tax Group under Article 40 of UAE Corporate Tax Law. Parent Co. holds 96% of the share capital, voting rights, and entitlement to profits and net assets of Subsidiary Co., both use the same financial year and accounting standards, and neither is a Qualifying Free Zone Person or otherwise Corporate Tax-exempt. What additional step is required before the Tax Group takes effect?
- Parent Co. and Subsidiary Co. must jointly apply to the Federal Tax Authority, which must approve the Tax Group before the members are treated as a single Taxable Person
- No further step is needed; meeting the 95% ownership and residency conditions automatically creates the Tax Group from the start of the tax period
- Each member must independently register for and pay Corporate Tax, because a Tax Group only consolidates VAT filings, not Corporate Tax
- The 96% ownership must first be reduced to exactly 95%, since Corporate Tax Law caps eligible ownership for Tax Group purposes at that level
Why A? And why not the others?
Correct answer: A. Parent Co. and Subsidiary Co. must jointly apply to the Federal Tax Authority, which must approve the Tax Group before the members are treated as a single Taxable Person
Article 40 requires that, in addition to meeting the ownership (at least 95% of share capital, voting rights, and entitlement to profits and net assets), residency, financial year, and accounting standard conditions, the parent and subsidiary must jointly apply to the Federal Tax Authority, which must approve the application before the Tax Group is treated as a single Taxable Person. Option B is wrong because approval by the Federal Tax Authority is a mandatory precondition, not an automatic consequence of meeting the ownership and residency tests. Option C is wrong because Article 40 Tax Groups consolidate Corporate Tax filing and liability, letting the parent file a single return on behalf of the group; VAT grouping is a separate regime under UAE VAT Law. Option D is wrong because the 95% figure is a minimum ownership threshold, not a ceiling — 96% ownership comfortably satisfies the condition and does not need to be reduced.
Source: UAE Federal Decree-Law No. 47 of 2022, Article 40 (Tax Group)