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 to 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.
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, By the assistance of tax lawyers, 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.
There are some conditions for Tax group registration that are required to be met before proceeding towards registration.
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.
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;