What Are the Requirements for Forming a Tax Group Under VAT in the UAE?

Businesses established and operating in the UAE are required to be aware of the tax regulations prevailing and the certain tax provisions that can assist the businesses to reduce their tax liability. The UAE has been implementing certain tax reforms with the motive of enabling the business entities to carry out the operations in a smooth manner. Businesses registered under the VAT must be aware of certain provisions like exemptions, reverse charge mechanisms, tax group provisions, etc., as these provisions are vital to be complied with and also can result in reducing the tax liability up to a certain extent. This blog focuses on the criteria that are to be met by the entities in order to be eligible for forming the tax group under VAT.

Why Form a Tax Group Under VAT?

There are certain implications for the tax groups under the VAT, as the group will be considered a single taxable entity under the VAT regulations. Any kind of supply that would be made within the group will not be considered under the purview of the VAT, and hence it won’t be charged with the VAT. Along with that, the tax groups will be provided with a common TRN for the purpose of tax filing and other operations, where only the one tax return is to be filed on behalf of the member groups. Among the members of the group, one of the members will be elected as the representative member, who will be responsible for ensuring that all the obligations are met and hence any supplies made or received will be in the name of such representative member.

What Are The Eligibility Criteria For Forming The Tax Group?

The individual entities who meet the criteria can form a tax group, and any 2 or more legal persons can apply for the same. The criteria are to be mandatorily met in order to get approval for the group. The criteria that are to be met include the following:

• Business criteria

For forming the tax group, the members are required to be carrying out any business activity or business. If the individual members are not engaged in any business, then it will not be eligible to form a tax group.

• The Legal Person Criteria

The members of the tax group to be formed must be a legal person, i.e., it must be either a company or any government entity or any similar entity.

As per the definition, the legal person is referred to as any entity that has, under relevant laws, a legal personality and has the capacity to enter into agreements and contracts in its name. It must be kept in mind that a natural person cannot become a member of the tax group nor can create one.

• Establishment Criteria

The individual members of a tax group to be formed must be a resident in the UAE, by having any primary business establishment in the UAE or a fixed establishment as a part of consequence related to it in the country.

• Related Party Criteria

The individual member of the tax group must be adequately related to the other members of the group. The term “related” means the share of economic benefits between the members, financial and organizational relationships, etc.

These are the requisites that are to be met as a part of forming the tax group under VAT in the UAE. The member must further follow the compliance requirements as stipulated by the FTA. The group must then apply for the tax group with the FTA.

What Are The Further Procedures?

After meeting the requisites, the group must determine whether it is required to be registered under the VAT along with meeting the further VAT registration requirements. Along with the members, they must select the representative member among them, as the tax group will be known based on such members’ names. Any further instructions as per the FTA must be met.

CDA: You Have a Tax Expert at Hand

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