Can a free zone company join a Tax Group?

Article 40 – Tax Group 1. A Resident Person, which for the purposes of this Decree-Law shall be referred to as a “Parent Company”, can make an application to the Authority to form a Tax Group with one or more other Resident Persons, each referred to as a “Subsidiary” for the purposes of this Chapter, where all of the following conditions are met: a. The Resident Persons are juridical persons. b. The Parent Company owns at least 95% (ninety-five percent) of the share capital of the Subsidiary, either directly or indirectly through one or more Subsidiaries. c. The Parent Company holds at least 95% (ninety-five percent) of the voting rights in the Subsidiary, either directly or indirectly through one or more Subsidiaries. d. The Parent Company is entitled to at least 95% (ninety-five percent) of the Subsidiary's profits and net assets, either directly or indirectly through one or more Subsidiaries. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 46 e. Neither the Parent Company nor the Subsidiary is an Exempt Person. f. Neither the Parent Company nor the Subsidiary is a Qualifying Free Zone Person. g. The Parent Company and the Subsidiary have the same Financial Year. h. Both the Parent Company and the Subsidiary prepare their financial statements using the same accounting standards. 2. Notwithstanding paragraph (e) of Clause 1 of this Article, one or more Subsidiaries in which a Government Entity directly or indirectly owns at least a 95% (ninetyfive percent) ownership interest as specified in paragraphs (b), (c) and (d) of Clause 1 of this Article can form a Tax Group, subject to the conditions to be prescribed by the Authority. 3. An application made under Clause 1 of this Article shall be made to the Authority by the Parent Company and each Subsidiary seeking to become members of the Tax Group. 4. A Tax Group formed under Clause 1 of this Article is treated as a single Taxable Person for the purposes of this Decree-Law, represented by the Parent Company. 5. The Parent Company shall comply with all obligations set out in Chapters Fourteen, Sixteen and Seventeen of this Decree-Law on behalf of the Tax Group. 6. The Parent Company and each Subsidiary shall be jointly and severally liable for Corporate Tax Payable by the Tax Group for those Tax Periods when they are members of the Tax Group. 7. The joint and several liability under Clause 6 of this Article for a Tax Period can be limited to one or more members of the Tax Group following approval by the Authority. 8. The Parent Company and each Subsidiary shall remain responsible for complying with the provisions under Article 45 of this Decree-Law. 9. A Subsidiary can join an existing Tax Group following submission of an application to the Authority by the Parent Company and the relevant Subsidiary. 10. A Subsidiary shall leave the Tax Group in the following circumstances: a. Following approval by the Authority of an application by the Parent Company and the relevant Subsidiary. b. Where the relevant Subsidiary no longer meets the conditions to be a member Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 47 of the Tax Group as specified in Clause 1 of this Article. 11. A Tax Group shall cease to exist in any of the following circumstances: a. Following approval by the Authority of an application by the Parent Company. b. Where the Parent Company no longer meets the conditions to form a Tax Group as specified in Clause 1 of this Article, subject to the provisions of Clause 12 of this Article. 12. The Parent Company of a Tax Group can make an application to the Authority to be replaced by another Parent Company without a discontinuation of the Tax Group, in any of the following circumstances. a. The new Parent Company meets the conditions under Clause 1 of this Article relating to the former Parent Company. b. The former Parent Company ceases to exist and the new Parent Company or a Subsidiary is its universal legal successor. 13. Notwithstanding Clauses 11 and 12 of this Article, the Authority may, at its discretion, dissolve a Tax Group or change the Parent Company of a Tax Group based on information available to the Authority, and notify the Parent Company of such action taken.

become unconditional. As of that moment, the buyer can meet the profits and net assets condition (assuming the shares transferred represent at least 95% entitlement to profits and net assets). That also means the seller no longer meets the profits and net assets condition as of that moment. However, depending on the relevant facts and circumstances, if there are material conditions to be met that are not within the control of the buyer (for example, a regulatory approval or other approval by third parties), the buyer may not be effectively entitled to the profits and net assets relating to the shares transferred until such time that the material conditions are met. In each case, this will depend on the particular facts and circumstances. 4.5.5. Indirect holding of rights to profits or net assets The same principles as discussed above in relation to share capital ownership and voting rights apply to determine the percentage of rights to profits and net assets held directly or indirectly. In this regard, see Section Error! Reference source not found. for situations where the Parent Company holds rights to profits or net assets indirectly through Subsidiaries and how to determine the percentage of rights to profits or net assets held directly or indirectly by the Parent Company. 4.6. Exempt Person condition and Qualifying Free Zone Person condition 4.6.1. General A Tax Group is intended to allow for the grouping of entities which are subject to Corporate Tax in the same manner. In line with this principle, an Exempt Person or a Qualifying Free Zone Person cannot form or join a Tax Group.49 By contrast, a juridical Resident Person that is a Free Zone Person but not a Qualifying Free Zone Person can be a member of a Tax Group, whether as a Parent Company or as a Subsidiary, if the other conditions for forming or joining a Tax Group are met. The mere fact that a juridical person is incorporated or established in a Free Zone is not, in itself, a barrier to being a member of a Tax Group. A branch of a Non-Resident Person could also fall within the definition of a Free Zone Person, if it is registered in a Free Zone. 50 However, a branch of a Non-Resident Person registered in a Free Zone cannot be a member of a Tax Group since it would not meet the juridical person condition, as the branch does not have a separate legal 49 Article 40(1)(e) and 40(1)(f) of the Corporate Tax Law. 50 Article 1 of the Corporate Tax Law. Corporate Tax Guide | Tax Groups | CTGTGR1 37