Tax Grouping Right for Your Business? Will Seven Eat Nine?

The UAE’s new Corporate Tax regime has sparked a lot of conversations—and questions—among businesses. One of the most intriguing provisions is Tax Grouping, which allows multiple entities to be treated as a single taxable person. But is it the right move for your business? Let’s dive in, and I’ll even share a relatable example from the medical field to make it clearer.

What is Tax Grouping?

Imagine you run a group of medical clinics, diagnostic centers, and a pharmaceutical distribution company across the UAE. Under Tax Grouping, these entities can consolidate their financial results and file a single Corporate Tax return. Sounds convenient, right? But like any major decision, it comes with its own set of pros and cons.

Key Considerations for Tax Grouping:

1. Eligibility Criteria:

• All entities must be UAE residents.
• They must share the same financial year and use the same accounting standards.
• A parent company (let’s say your flagship hospital) must own at least 95% of the share capital and voting rights of its subsidiaries (like your clinics and distribution arm).

2. Pros of Tax Grouping:

• Simplified Compliance: Instead of filing multiple tax returns, your entire medical group files just one.
• Loss Relief: If your diagnostic center incurs a loss this year, it can offset the profits of your thriving pharmaceutical distribution business.
• Cash Flow Management: You might defer tax payments, freeing up cash for critical investments—like upgrading medical equipment or expanding services.

3. Cons of Tax Grouping:

• Joint Liability: If one entity in your group faces a tax issue, the entire group is liable. For example, if your clinic underreports income, your hospital and distribution company could also be on the hook.
• Complexity in Exit: If you decide to sell one of your clinics in the future, exiting the tax group could trigger unexpected tax implications.
• Administrative Overhead: Aligning financial years and accounting standards across your medical group might require significant effort and resources.

Will Seven Eat Nine?

The phrase “Will seven eat nine?” is a playful way to highlight the strategic decisions businesses must make under the new tax regime. Just as the number seven might “eat” nine in a game of strategy, businesses must carefully weigh their options. For instance, should your medical group consolidate under Tax Grouping, or would it be better to keep entities separate?

A Real-World Example:

Let’s say you own Medcare Group, which includes:

1. MedCare Hospital (your flagship entity).

2. MedCare Diagnostics (a chain of diagnostic centers).

3. MedCare Pharma (a pharmaceutical distribution company).

If MedCare Diagnostics has a tough year due to reduced patient visits but MedCare Pharma thrives because of increased drug sales, Tax Grouping could allow the losses from Diagnostics to offset the profits from Pharma. This could result in significant tax savings for the group as a whole.

However, if MedCare Pharma faces a tax audit or penalty, the entire MedCare Group—including the hospital and diagnostics centers—could be held liable. This is where the decision becomes a balancing act.

Is Tax Grouping Right for Your Business?

For MedCare Group, Tax Grouping might make sense if the benefits of simplified compliance and loss relief outweigh the risks of joint liability. But for another business, like a standalone medical practice, it might not be necessary.

The UAE Corporate Tax regime is still evolving, and businesses must stay informed and proactive. Tax Grouping can be a powerful tool, but it’s not a one-size-fits-all solution.

What’s your take on Tax Grouping? If you’re in the medical field, how do you see this impacting your operations? Let’s discuss

AB Capital Services

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