Since the enactment by the UAE Ministry of Finance of Federal Decree Law No. 8 of 2017 on Value Added Tax (VAT Law), associated companies may be considering restructuring their group in order to be eligible to qualify and register as a “VAT group” or “tax group”.
Although the main driver for companies deciding to register as a tax group will likely be to avoid VAT on supplies made between group companies, there are potentially other advantages as well, such as:
- only having to produce one VAT tax return for the group, thereby lessening the administrative burden;
- the ability to benefit in certain circumstances from exempt supplies made between group companies; and
- minimizing the VAT consequences on the transfer of assets between group companies.
Under the VAT Law, two or more persons conducting business can apply to register as a tax group, if three conditions are satisfied. A “person” is defined as a natural or legal person, but practically speaking an individual could not join a tax group, given that only a legal person is entitled to carry out business in the UAE under applicable laws and regulations. Legal persons alone therefore will be capable of being included in a tax group. The three eligibility criteria are, that:
Whilst the VAT Law sets out some key principles to qualify as a tax group, there remain a number of issues to be addressed under the impending Executive Regulations to the VAT Law, so the complete picture cannot yet be seen.
The VAT Law provides that the Executive Regulations will:
It is also worth noting that tax grouping may not always be the best idea for companies. There will be disadvantages to tax grouping, which should be carefully considered and on which professional advice should be sought in the particular circumstances. Notwithstanding the FTA’s powers to impose tax grouping, as mentioned above, we expect, for example, that the Executive Regulations will provide that all group companies will be jointly and severally liable for VAT owed to the FTA, which may also include former group companies. Other factors affecting the ability for the proposed tax group to take full benefit of input VAT credits where, for example, exempt supplies are also a feature of the group, should be considered. These matters could be fundamental to the question, “to group, or not to group”?
For more information, please contact us on sectors@hadefpartners.com.
Any opinions expressed here are the author’s own. © Hadef & Partners 2017