VAT Group Registration

In this article, let us understand the conditions for forming a VAT group and the advantages of forming a VAT group. Before that, make a note that VAT group registration requirements are entirely different from Corporate Tax group registration. Read more to know Corporate Tax Group registration.

A VAT group can be formed by two more companies that are VAT-registered in the UAE, where both companies are related parties.

Who is a related party for VAT purposes?

Article 9 of the VAT Executive Regulations outlines who is a related party. A related party can be defined in simple terms as two or more legal persons who are connected through common ownership (common shareholder) or common control (common manager). Examples are as below:

• ABC LLC is owned by Mr. A 50% and Mr. B 50%. XYZ LLC is owned by Mr. A 50% and Mr. Z 50%. Since Mr. A is the common shareholder in both ABC LLC and XYZ LLC, these companies can be considered as related parties for VAT purposes.
• If both the above companies have different shareholders, but Mr. X is the manager in both licenses. Due to the control of Mr. X in both companies, the companies can be considered as related parties.

VAT Group Registration Application to FTA

A separate application is required to be submitted to FTA for forming a VAT group. When there are 2 or more companies, a company needs to be appointed as a Representative Member of the group. Other companies in the group are named as members. The VAT group registration application shall be done from the portal of the representative member. The administrative responsibilities are held with the representative member, like VAT return filing, amendment application submission, removal and adding of members, etc., whereas VAT payment is the joint responsibility of all the members in the VAT group. Below are the additional documents to be submitted to FTA while submitting the VAT group registration application.

• No objection letter from all member companies mentioning that they have appointed the representative member to act on behalf of the VAT group
• Group structure showing the common ownership or control
• Group turnover declaration.

Once the VAT group registration application is approved, the individual VAT number will be suspended and a new VAT number will be issued for the group. At the time of dissolving the VAT group, the suspended stand-alone VAT numbers will be reactivated.

The VAT group registration application will be reviewed by FTA in 20 business days and take necessary action either with approval of the application or requirements of additional information, if any.

VAT Group Registration Application to FTA

If there are 2 or more companies who want to register as a VAT group (the companies not registered for VAT already) they are required to reach a VAT registration threshold as below:

• Each member or one member satisfies the VAT registration criteria.
• The group in total is eligible for VAT registration by crossing the registration threshold via taxable supplies or taxable expenses.

Potential situations where FTA rejects the VAT Group registration application

Below are a few scenarios where FTA may reject the VAT group registration application:

• If the taxable persons who are part of the VAT group registration application do not meet the eligibility criteria for creating a VAT group,
• If the authority believes with a strong group that the VAT group registration application is for tax evasion, approval of the application may lead to an administrative compliance burden to the Federal Tax Authority.
• The member of the VAT group registration application is not a legal person.
• The authority believes with strong grounds that the approval of VAT group registration will lead to a significant decrease in tax revenue.

Benefits of creating a VAT group

• Single VAT return: The VAT group is required to file a single VAT return on behalf of all the companies that are part of the group.
• Less administrative compliance: Since a single VAT return is required to be submitted, the administrative burden on the companies in the VAT group may be lesser.
• Intra-group transactions: The transactions happening between the companies in the VAT group are outside the scope of VAT. As the VAT group files a single VAT return, for transactions within the group, one company's VAT collected will be another company's VAT paid. The net result will always be zero. VAT group registration is always an advantage for companies that do transactions between them. 

De-registration of VAT Group

In certain situations, the VAT group shall be de-registered. The representative member is required to submit the application for VAT group de-registration. Below are a few circumstances where the VAT group shall de-register:

• If the VAT group does not meet the criteria for remaining as a group for VAT purposes,
• The VAT group consists of 2 companies, and one of the companies is removed from the VAT group due to liquidation of the company or any other reason.
• The group does not satisfy the threshold of taxable supplies / taxable expenses for voluntary registration ( AED 187,500 in the previous 12 months or expected to cross in the coming 30 days )

Once de-registration is mandatory, the application shall be submitted by the representative member within 20 business days from the date the conditions for de-registration are met. The delay in applying for de-registration of VAT groups can attract administrative penalties.

To learn more about VAT Group Registration Benefits and Requirements, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.