Tax grouping for VAT purposes is an administrative easement available to businesses
and a revenue protection measure for government:
Creating a tax group has the effect of registering a single taxable person.
A tax group is issued one VAT Tax Registration Number (TRN) for use by all
group members, and only one tax return is required for all group members.
Transactions taking place within a tax group are generally disregarded for VAT
purposes, meaning that cash-flow or absolute VAT costs that might otherwise
be suffered by the businesses concerned are eliminated. Moreover, revenue
risks that might otherwise arise on significant intra-group transactions are also
eliminated.
Strict qualifying criteria must be applied to limit the use of the measure to those for
which it is designed i.e. it is an administrative simplification measure, not one designed
to enable tax avoidance at any level.
Purpose of this document
This document contains more detailed guidance for businesses interested in forming
a tax group, adding members to or removing members from an existing tax group, and
disbanding a tax group.
Who should read this ?
This document should be read by all persons seeking to understand whether or not
they are eligible to form a tax group, how to amend a tax group, and how to disband a
tax group. It should also be read by those who are part of a tax group so as to
understand their associated obligations.
Implications of grouping for VAT purposes
The effect of a tax group registration is that the members of the tax group are treated
as a single taxable person for VAT purposes. This means that:
Supplies made between members of the tax group will be disregarded for VAT
purposes and therefore no VAT is chargeable on intra-group transactions;
Only one VAT Tax Registration Number is issued for use by the group;
The tax group submits only one tax return which summarises all supplies and
purchases made by group members over the VAT period concerned; and
One member of the tax group will be appointed as its ‘representative member’.
All of the VAT obligations of the tax group, and all supplies made and received
by it, are deemed to be carried out in the name of the representative member.
Important note to be considered: the members of a tax group are jointly and severally liable
for any and all VAT debts and other such obligations of the group for the period during which
they were members. That means that even when a business has left a tax group, it remains
liable for the period of membership.
Eligibility to form a tax group
Subject to certain criteria being fulfilled, two or more legal persons may apply to form
a tax group. Details of each of the criteria that must be fulfilled by each of the members
of a tax group are set out below.
Business criteria
Each member must be carrying on a business. Broadly, a business is defined as any
activity carried on in any place (i.e. in the UAE or elsewhere) regularly (i.e. the activity
is not a one-off event) and independently (i.e. by a business, not its employees).
Generally, this means that a person that is not in business cannot form or join a tax
group.
Legal person criteria
Each member of a tax group must be a legal person (i.e. they must be a company,
government entity, or similar).
A legal person is an entity that has legal personality formed under the relevant laws
that is capable of entering into contracts in its own name. Typically, for example, a
company would be a legal person, as it is formed under companies law and can enter
into contracts. However, it is also possible for other entities to be created which are
similar (e.g. the companies formed by Decree under local laws in the Emirates).
A natural person (i.e. an individual) cannot create or join a tax group.
Establishment criteria
Each member must be resident in the UAE, either by way of having its primary
business establishment or as a consequence of having a fixed establishment in the
country. A business establishment is usually the place where key management
decisions affecting a business are made. A fixed establishment is a place which
possesses the necessary human and technical resources sufficient to carry on a
business.
A foreign-owned subsidiary that has been established in the UAE can, under these
criteria, qualify to be included in a tax group. A branch of a foreign-owned company
can also qualify under the fixed establishment test.
Related parties (and control) criteria
Each member must be related to the other to a sufficient extent. In this context,
“related” is taken to mean they share economic, financial and organisational ties
(either in law, shareholding or voting rights). One person must be able to control the
members.
Economic ties are indicated where, for example, there is a common interest in the
proceeds of the business. Financial ties are indicated where, for example, one part of
the business benefits the other. Organisational ties are indicated where, for example,
you share common premises.
Noticeable Point: common sponsorship of two or more Legal Persons will, generally, give
rise to the possibility of tax grouping but only where the control criteria can also be met
in actuality. Where the sponsorship agreement is overridden by another agreement whereby
the control criteria cannot, in actuality, be satisfied, tax grouping will not be possible.
Government Entities
Additional criteria for Government Entities
There are certain additional criteria which apply to Government Entities in respect of
forming a tax group:
Designated Government Bodies may only form or join a tax group with other
Designated Government Bodies;
Designated Government Bodies may not form or join a tax group with other
Government Bodies (i.e. those Government Bodies which are not Designated);
and
Government Bodies that are not Designated and are registerable in their own
right can form or join a tax group with other legal entities, subject to the usual
tax grouping rules.
Forming and amending a tax group
Forming a tax group
Once it has been determined that the prospective members are eligible to form or join
a tax group, it is also necessary to establish whether that group is required to or eligible
to register for VAT purposes. The VAT registration requirements can be satisfied
where either –
one prospective member alone satisfies the relevant registration requirements;
or
if taken together, the total value of supplies made by or expenses (which are
subject to VAT), incurred by the prospective members satisfy the relevant
registration requirements.
The flowchart in Appendix A will assist to determine whether the tax group eligibility
and registration tests have been met and an application can be submitted.
An application to form a tax group will, subject to the necessary checks being
satisfied, be treated as effective on either –
the first day of the tax period following the tax period in which the application is
received; or
any other date as determined by the Federal Tax Authority (FTA).
Applying to form a tax group
As part of the registration process it will be necessary for you to decide who you wish
to appoint as the representative member of the tax group. The representative member
can be any one of the members of the proposed group. The tax returns of the group
are submitted in the name of the representative member.
Important: notwithstanding the appointment of a representative member, the
members of a tax group are jointly and severally liable for all taxes and penalties due
from the representative member.
Citations: FTA Website.
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