Related Parties (VAT Group) under UAE VAT Law

Group Registration will save Cash outflow on account of VAT between related parties though companies have to give away their Profit Planning:

Different businesses are owned by individuals, some may have various branches or some may have various companies with different owners/ investors with different percentages of shareholding. Businesses with multiple legal entities under common control can choose to be treated as a single entity for the purposes of VAT and its reporting. This is known as Group Registration under Article 14 of the UAE VAT Law.

As per clause 1 of Article 14 of the UAE VAT Law the key of group registration is the “Common Control” in entities and not the ownership.  Once all the entities under single control, registered as group, VAT need not be charged within the group transactions. Also it needs to file a single periodic Tax return of VAT.

Registration under a VAT Group can be done at any time. FTA can refuse the request of group registration if criteria of group creation does not met or if FTA feels that its creation would lead to a material change in the value of the VAT liability or if its suspected that the purpose of group is to create an avoidance vehicle of VAT.

On the other hand if Related Parties do not apply for Tax Registration as a Tax Group, FTA may assess their relation based on their economic, financial and regulatory practices in business and register them as a Tax Group.

With a VAT effective system in place, it must be economical and less time consuming for companies to manage the VAT returns centrally under the group. Though monthly review of each entity’s VAT position and record keeping may increase the time required for VAT compliance.

In current scenario and ease of doing business in the UAE, organizations are generally structured in multiple companies. Grouping makes the shifting of assets and liabilities simpler as no VAT is applied to intra group transaction. This is particularly useful where a large portion of a single entity is being divested and those elements left behind need to be reallocated within the seller’s group.

All grouped entities are jointly and severally liable for the VAT liabilities this resulting into that management of an entity within the group will be held equally responsible for any fraudulent activity during their tenure in other entities too.

Grouping may lead to some complexities as well. Like if in a group there are different businesses dealing with exempted or zero rated or standard rate activities. How the VAT is going to be dealt with while transferring the exempted goods within the group to a standard rate entity. This would additionally impact the input credit as it can be claimed on pro rata based on the revenue of each company within the VAT group.

For a Tax Group some of the implications will be:

To appoint a group representative

VAT invoice to be raised in name of group representative

Supplies of goods and services to be treated as done by representative

VAT reporting will be under the name of representative

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