Removing a Member from a UAE Tax Group: Rules and Consequences

There are provisions under CT Law that allows a parent company to remove entities under relevant conditions.

Removing members can occur due to ownership dilution (i.e. 95% ownership no longer applies), by application, or upon sale and restructuring of entities. Once a company leaves, past returns are not reopened or recalculated. Tax outcomes for closed periods remain final.

Instead, the CT Law focuses on how calculations are treated moving forward.

1. Pre-group losses Losses that the leaving company incurred before joining the group remain linked to the subsidiary and leave with it if they were not yet utilized.
   
   
   

   Losses that arose while the group was complete do not move with the leaving subsidiary and there is no reversal of losses already used in prior taxation periods.

   
   
2. Tax Adjustments and Clawback
   If an asset or liability was transferred between group companies, and then the transferor or transferee leaves within 2 years, the normal elimination/consolidation treatment may be switched off and income that was not previously taken into account must be taken into account when the entity leaves, with a corresponding cost base adjustments (i.e. depreciation costs, amortization and similar adjustments on asset value).
   
   

   In simpler terms, any gain or income that was temporarily ignored while companies were in a group structure may need to be recognized going forward.

   
   

This prevents groups from using losses temporarily and keeps them from gaming the system by restructuring to keep the tax benefit without the underlying company.