Input tax recoverability - branch of a foreign company
Hello, a company is considering establishing a UAE based branch which will conduct R&D activities. The branch will not generate any revenue and will be fully financed by the parent. R&D will mostly be conducted by consultants outside of the UAE and thus output VAT will be reverse charged on the value of purchased services. Would it be possible to recover input VAT in this case? If the branch was providing services to i.e. a customer in the GCC, the supply of R&D services would be taxable - is it enough to meet the requirements of article 54 (1b) of the VAT decree?
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If the branch does not generate revenue then it is unlikely that FTA would grant a registration considering threshold is not being met with. You should also consider that if the Branch is VAT registered then effectively the HO is considered as VAT registered in UAE and any supplies made by the HO where the branch is involved i.e fixed establishment closely related to the supply is the Branch, then the same could be considered within the purview of UAE VAT. Art 54(1b) addresses out of scope supplies made by a taxable person and provides the person eligibility to recover VAT against OOS supplies. If the branch provides services to a customer in GCC this could either be a taxable supply or OOS supply (depending on the POS rules). if the branch is VAT registered it would be entities to recover input against its taxable and OOS supplies.
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