Qualifying Group Formation

Qualifying Group Formation (Articles 40-42)

What is a Qualifying Group?

A qualifying group allows loss surrender between members without forming a formal tax group.

Conditions

1. Both entities are resident juridical persons
2. One entity owns 75%+ of the other (directly or indirectly)
3. Both have the same financial year end
4. Both use the same accounting standards
5. Neither is a Free Zone entity (unless both are)

Loss Surrender

• The surrendering entity transfers its current year loss
• The claimant entity offsets the loss against its taxable income
• The loss must be surrendered in the same tax period

Example

Company A (75% owned by Company B):
  A has a loss of AED 300,000
  B has a profit of AED 1,000,000

A surrenders AED 300,000 loss to B.
B taxable income: AED 1,000,000 - AED 300,000 = AED 700,000

Election

The election for group relief is made in the tax return. Both entities must agree.