The value-added tax (VAT) system was implemented in the UAE on January 1, 2018, as the official indirect tax system. The standard rate of the VAT is fixed at 5 percent for the supply of taxable goods and services in the country. VAT has many provisions including that of the VAT group. In this article, you will know more about VAT groups, their benefits and applications, registration conditions and procedure.
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What is a VAT Group?
A tax (VAT) group is made of two or more persons or businesses who operate under the same business entity. Businesses in the UAE can apply for a VAT group registration to secure a single registration with the FTA instead of getting separate registrations for various parts of the same parent organization. The VAT group is formed only for tax purpose.
As defined in the Federal Decree-Law Number 8 of 2017 VAT/Tax Group is
“Two or more persons registered with the FTA authority for Tax purposes as a single taxable person in accordance with the provisions of this Decree-Law.”
There are pros and cons in registering as a VAT/Tax Group. so Before deciding to apply for a VAT/Tax Group registration, one should be able to learn the advantages and disadvantages of doing so.
Benefits of Registering as a VAT Group in UAE
There are a few benefits of getting a VAT group registration as mentioned below.
- Less complexity: All your businesses registered under the VAT group will be treated as a single entity for VAT purpose. The complexity of maintaining separate tax records and filing separate tax returns is reduced. The business accounting gets simple as all VAT related activities are performed at the group level.
- No VAT on intra-group supplies: VAT is not applicable on the supplies made between the different entities of the same VAT group. Therefore, you can send/receive anything from one group entity to another without having to pay tax on it. However, a supply between two entities (one local and one international) of the same VAT group is taxable under the VAT.
- Multiple entities of the same business can operate as a single entity for VAT purpose.
A Disadvantage of Tax Grouping in UAE
There are a few Disadvantage of VAT group registration when you do not register for VAT, as mentioned below.
- It takes time to secure the relevant data for the completion of one return; this can mean that a group may miss deadlines and incur penalties.
- There is only one authorized signatory needed, it is a such a high risk for the officer who is ordered to sign.
- One mistake of information of one entity can affect all group.
It is indeed advisable for entities to seek legal advice and help from a tax consultant in order to decide on things that may affect their company in a long-term manner.
How to get VAT Group Registration in UAE?
The process for getting a VAT group registration in the UAE is more or less similar to the process for getting a normal VAT registration. However, there are some conditions that need to be fulfilled to be eligible for VAT group registration.
Conditions for VAT Group Registration
1. Place of Establishment
Each entity/person of the group must have either a place of establishment (a place with a registered physical address for the business, where management decisions are made and important business functions are held) or a fixed establishment (a fixed business place, other than the place of establishment, where regular business is conducted and sufficient human and technology resources are available. This includes business branches.) in the UAE.
2. Relation between entities
The relevant entities (persons) of the group must be related in terms of economic, regulatory and financial matters, with the ability to make decisions that affect all entities of the group.
3. Separate business entities working in partnership should control the others
The different related entities of the group should have collective control over the business.
Applying for VAT Group Registration
The registration process for the VAT Group is simple and more or less similar to the individual VAT registration process. Just register on the FTA portal under “Business registering for Tax” option. After successful registration, log in to the website. Select VAT Group registration under registration type and proceed.
You will be sent the confirmation on your registered email id after successful registration.