The Value Added Tax (VAT) is executed in the UAE through the Federal Decree-Law Number 8 of 2017 on Value Added Tax (the VAT Law). This tax is applied on every taxable supply and tax-registered business in the UAE except the tax-free zones. It is a transaction-based indirect tax collected by suppliers or businesses from consumers on behalf of the Federal Tax Authority (the FTA). Five percent (5%) of VAT is imposed on any supplies and imports in UAE on 1 January 2018. Entities and businesses are required to get a VAT registration number to pay taxes.
Brief on VAT group registration in the UAE:
VAT Law has introduced a group registration for tax returns to simplify the procedure for companies and persons. Tax Group is defined under the Value-Added Tax Law as two or more persons registered with the Federal Tax Authority (FTA) for tax purposes as a single taxable person in accordance with the provisions of the VAT Law 2017. Under this law, two or more companies can register for VAT payment or returns as a single entity. In this mechanism, a group of companies or persons get registered in the representation of one company or person to file VAT or VAT returns on behalf of all the group members. All the tax group members are liable for the payment of VAT or returns or any defaults regarding VAT jointly.
The group members are free to do any transactions within their group; they do not need any specific VAT accounting for such transactions. This mechanism is used in several countries, and it is also known as group registration. For the purpose of VAT, the VAT group will be considered as a single company.
Conditions for VAT group registration in the UAE:
There are some conditions for Tax group registration that are required to be met before proceeding towards registration.
- The representative member must have a Tax Registration Number (TRN) for VAT; if the representative member does not have TRN, he will have to register for VAT by filing an online application.
- All the tax group members should be legal persons; a natural person can not form or join a tax group carrying on business, UAE residents, and are not members of any other tax group at the time of registration.
- Each member of the group shall have a Place of Establishment or Fixed Establishment in the State. The relevant persons shall be Related Parties. It is required that one or more persons conducting business in a partnership shall control the others. VAT Law provisions will determine the instances where the FTA may reject the application to register a Tax group. The FTA assesses and issues its decision regarding approval or rejection of tax group formation within twenty business days from the date for receiving an application for registration.
- Any person or entity conducting business cannot have more than one Tax Registration Number (TRN), except it is allowed by law through any regulations. If Related Parties do not apply for Tax Registration as a Tax group under the provisions of VAT Law, the FTA may assess the relation of related parties based on their economic, financial, and regulatory practices in business and register them as a Tax group, if their relation was proved to that according to the controls and Conditions specified by the Executive Regulation of the Value-Added Tax Law.
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What could lead to the cancellation of VAT registration in the UAE?
The FTA is empowered to cancel registration or deregister any Tax group if it finds such a group is not meeting the conditions prescribed in VAT Law’s Executive Regulations. The FTA can add or remove a member of the Tax group on the taxable person’s request or in accordance with the circumstances defined by any Executive Regulations from time to time.
Benefits behind VAT group registration:
One common VAT registration number is issued in the representative member’s name when the Tax group is registered. The representative member submits all dues on behalf of all members. All the group members use the same consolidated accounting system. Each member is liable for the debts and defaults in case of VAT on the representative member. There are separate criteria for government entities to form a tax group; that is, Designated Government Bodies can form groups with other Designated Government Bodies. Designated Government Bodies are not allowed to form a Tax group with any not Designated Government Bodies. The not Designated Government Bodies that are registrable in their own right can form or join a tax group with other legal entities, as per the usual tax grouping rules.
The tax grouping has numerous benefits, including;
- Having a consolidated account to pay VAT returns, which reduces the members’ administrative cost because the cost is divided amongst the group members, and it gets reduced.
- The supply of goods and services between the group members is VAT-free.
- VAT is not applied to the Intra-Group dealings of goods and services.
- VAT is charged transactions outside of the tax group. If any member imports any VAT taxable goods, it can be paid by the representative member.
- Besides all the tax group benefits mentioned earlier, it is easy to add or remove a group member or a company by an application by the representative member. Furthermore, the group representative member can be easily changed and can terminate the Tax group anytime.