What ownership is required to form a Tax Group?

Article 2 – Ownership Requirements 1. For a Tax Group to be formed or continue to exist, the conditions specified under Clause (1) of Article (40) of the Corporate Tax Law must be met continuously throughout the relevant Tax Period. 2. For the purposes of paragraph (b) of Clause (1) of Article (40) of the Corporate Tax Law, share capital shall mean the nominal issued and paid-up share capital, or Membership or Partnership Capital of each Subsidiary, as applicable.

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.

Article 2 – Ownership Requirements 1. For a Tax Group to be formed or continue to exist, the conditions specified under Clause (1) of Article (40) of the Corporate Tax Law must be met continuously throughout the relevant Tax Period. 2. For the purposes of paragraph (b) of Clause (1) of Article (40) of the Corporate Tax Law, share capital shall mean the nominal issued and paid-up capital, or Membership or Partnership Capital of each Subsidiary, as applicable.

Alternatively, Company B holds 95% of shares in Company C. Assuming the other conditions of Article 40(1) are met, Company B can form a Tax Group with Company C. However, a juridical Resident Person can only be part of one Tax Group at any given time. Hence, during any Tax Period, Company B can only be part of one Tax Group and not both the Tax Groups, i.e. Tax Group with Company A or Tax Group with Company C. To determine the share capital ownership threshold, a direct ownership held by the Parent Company can be combined with any indirect shareholding or equivalent ownership interest held by a Subsidiary. The share capital ownership condition is met if total ownership (i.e. direct and indirect ownership) is 95% or more. Example 6: Direct and indirect shareholding in a Subsidiary Tax Group Company A 50% 95% LLC Company B 50% Company C Company A, Company B and Company C are all juridical Resident Persons. Company A wishes to form a Tax Group with Company B and Company C. Company A holds 95% shares in Company B. Assuming all other conditions of Article 40(1) of the Corporate Tax Law are met, Company B qualifies as a Subsidiary. Company A can form a Tax Group with Company B. Company A holds a 50% direct stake in Company C. The remaining 50% is held by Company B. Accordingly, Company A holds 47.5% (i.e. 95% of 50%) of the share capital of Company C indirectly through Company B (which is considered a Subsidiary of Company A). As a result, the total of Company A’s direct (50%) and indirect (47.5%) ownership of the share capital of Company C is 97.5%. This means Company A meets the share capital ownership condition in respect of Company C. Assuming all other conditions of Article 40(1) of the Corporate Tax Law are met, Corporate Tax Guide | Tax Groups | CTGTGR1 29

8.3.1. Requirements to form a Tax Group In order to form a Tax Group, a Parent Company must make an application to the FTA. The application must be made by the Parent Company and each of the Subsidiaries seeking to become members of the Tax Group. Both the Parent Company and its Subsidiaries must be resident juridical persons under the Corporate Tax Law and under a relevant Double Taxation Agreement (if applicable), have the same Financial Year, and prepare their Financial Statements using the same accounting standards.321 No member of the Tax Group can be an Exempt Person322 or Qualifying Free Zone Person.323 In addition, there are ownership requirements such that the Parent Company must directly or indirectly: • • • own at least 95% of the share capital of the Subsidiary;324 hold at least 95% of the voting rights in the Subsidiary;325 and be entitled to at least 95% of the Subsidiary’s profits and net assets.326 A Parent Company or Subsidiary must not be considered resident for tax purposes in another jurisdiction under a relevant Double Taxation Agreement.327 This may require the Parent Company or Subsidiary to maintain documentation to confirm that it is not resident for tax purposes in another jurisdiction, such as a confirmation from the relevant tax authority of the other jurisdiction.328 8.3.2. Formation and cessation of a Tax Group A Tax Group will be formed from the beginning of the Tax Period specified in the application submitted to the FTA. The FTA may also determine the formation date as being the beginning of any other Tax Period.329 A Tax Group will cease to exist if the FTA approves the dissolution of the Tax Group, or if the Parent Company no longer meets the necessary conditions throughout the 321 Articles 40(1)(a), 40(1)(g) and 40(1)(h) of the Corporate Tax Law. 322 Article 40(1)(e) of the Corporate Tax Law. 323 Article 40(1)(f) of the Corporate Tax Law. 324 Article 40(1)(b) of the Corporate Tax Law. 325 Article 40(1)(c) of the Corporate Tax Law. 326 Article 40(1)(d) of the Corporate Tax Law. 327 Article 3 of Ministerial Decision No. 125 of 2023. 328 Article 3 of Ministerial Decision No. 125 of 2023. 329 Article 41(1) of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 103