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What is Tax Group Registration?

APMH Management & IT Consultant
Author: CA Mitesh Katira
Posted On: Thursday 30 November 2017

Tags: UAE VAT UAE Tax Grouping Tax Group Registration GCC VAT

FAQ on the Tax Group Registration under GCC VAT

The GCC agreement for the VAT Implementation has inherited a typical feature called as Tax Group Registration from the European Union model. While looking at the VAT Laws of the UAE and KSA which already published in the public domain, it apparently seems that these laws have got clear indication of legal and procedural aspects of the Tax Group Model.

To understand the basics of the VAT coming in GCC region, refer to our article

This feature has become one of the points of decision making for most of the Arabian investment groups which typically own and invest in multiple businesses developing in different entities with common management and control. This will also be a question for the professionally managed multinational companies who have over a period of time de-merged different businesses in different entities with common overall ownership for convenience of management and growth of independent profit centers.

Let’s understand the “who” and “why” of this tax group registration from a VAT impact analysis stand point….

Who can form a Tax Group and Register the same for the VAT?

As per the article 10 of KSA VAT Regulation and article 14 of the UAE VAT decree Law no. 8, Entities fulfilling the below criterion become eligible to tax group registration

  1. Each such entity shall have a fixed establishment in the member state;
  2. Voting / indirect controlling interests in each of those legal Persons of 50% or more;
  3. Market value interest in each of those legal Persons of 50% or more;
  4. Atleast one legal person is a taxable person.

What are the benefits of  Tax Group Registration under the VAT law?

  1. There shall not be any tax charged on the supplies between the tax group entities.
  2. The excess credit generated by the entities on the input side due to supply of zero rated services or goods on the output side, can be consumed by the entities having higher output VAT payable thereby reducing the cashflow impact on the overall level.
  3. Only one VAT registration number between all the entities, thereby reducing the regular Vat compliance cost and time.

Here is our article useful registration process and formalities under the UAE VAT

What the cons of  having tax group Registration?

  1. Administratively and from IT point of view, it shall be a challenge to maintain the accounts and drawing summary for such tax group level compliance.
  2. One of the entities whichisnominated as a representation member shall be responsible for all types compliance and consequential penalties / prosecutions for the whole group.
  3. If due to any reason of restructuring or change of ownership in an entity resulting into lapse in any condition mandatory for the tax group registration, the tax authorities may ask for tax computation from a retrospective effect and collect the same.
  4. There is a risk for compulsive grouping by tax authorities or de-grouping of an entity in the tax group if such entity is seen to be misusing the group concept for taking undue benefit or misrepresenting the actual payable tax.

 From the above backdrop, whether the entities fulfilling all the conditions can be selectively made the part of the group or kept out as the case may be from tax optimization or planning angle? This needs to be thought of.

Basis the above understanding CFO or CEO or the management can assess the cost benefit of going under a tax group registration and take the step forward in that direction.

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