Tax Grouping for Tax Purpose

VAT Grouping in UAE for Tax Purpose 

Tax grouping means two or more persons, companies or limited liability partnerships can apply for Tax Registration as a Tax Group and will be considered as a single taxable entity for VAT purposes. As per the Federal Decree-Law Number 8 of 2017, Tax Group is “Two or more persons registered with the authority for Tax purposes as a single taxable person in accordance with the provisions of this Decree-Law.” 

Conditions for Registering Tax Group under VAT   

Following conditions should be fulfilled to be eligible to register as a Tax Group. 

1. Each person shall have a Place of Establishment or Fixed Establishment in the UAE, where; 

Place of Establishment: Place where a business is legally established in UAE or a place where significant management decisions are taken and central management functions are conducted. 

Fixed Establishment: A branch office or representative office where the person conducts his business regularly and where sufficient degree of human and technology resources exist which enables the person to supply or acquire Goods or Services.  

2. The relevant persons should be Related Parties who are not separated on the economic, financial or regulatory level, where one can control others either by Law, or through the acquisition of shares or voting rights. 

3. One or more persons who are related, controls the other business.  

Benefits Of Tax Grouping 

. Supplies made between members of the tax group will be disregarded for VAT purposes and therefore no VAT is chargeable on intra-group transactions; 

. All the entities within a VAT Group will be treated as a single entity for VAT purpose , thereby requiring only one tax return which will help businesses in simplifying compliance and accounting for VAT; 

. Transactions taking place within a tax group are generally disregarded for VAT purposes, which means that VAT will not be levied on the supplies between the entities of a VAT Group., thereby furthersimplifying accounting and record-keeping process. However, supplies made by the VAT group to an entity outside the VAT group are subject to VAT; 

. There will be low-risk challenge of transfer pricing; 

. Revenue risks are minimized; 

. Cash flow benefits can be expected; 

While registering as a Tax Group, companies should provide an evidence of the group structure showing the controlling/shareholding structure as well as a board resolution from each member companies stating that they have appointed a company member as the ‘representative member’ of the tax group for VAT purpose. All of the VAT obligations of the tax group, are deemed to be carried out in the name of this representative member,provided this member is : 

. Legal person; 

. A resident in the UAE; and not a member of another Tax group  

However the members of a tax group are still jointly and severally liable for any and all VAT debts and other such obligations of the group for the period during which they were members. That means that even when a business has left a tax group, it remains liable for the period of membership.  

It is interesting to note that in future, if need be, changes can be made to the composition of a tax group including, subject to certain specific conditions being fulfilled: 

. Adding members to a tax group; 

. Removing members from a tax group; 

. Changing the representative member of a tax group; 

. Disbanding ie. cancelling a tax group. 

It is important to keep in mind that if you are registering for VAT under TAX group option, you can give only one bank account number of the representative company which you choose while registering for VAT as Tax Group, and not the account of all the companies involved. Federal Tax Authority (FTA) has full authority to reject an application to register a tax group in case it suspects tax avoidance. 

Reference : VAT Guide | VATGGR101

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