Companies worldwide are required by the regulations specific to the country to pay taxes and file corresponding returns with the respective authorities. UAE has been one of the most attractive investment destinations for companies worldwide because of its geographical location, stability and business-friendly regulations.
Until 2018, most companies in the UAE are not required to pay and file any tax returns. By introducing the UAE VAT law on 1st January 2018, the tax scenario changes in the country. According to the VAT law, companies collect the new Value Added Tax (VAT) on the products sold to their customers on behalf of the Government. Further, Companies make the payment of taxes collected to the Government and file the tax returns periodically.
What is a Tax Group in the UAE?
As VAT taxation is relatively new in the UAE, the Government has designed the VAT regulation to benefit the companies operating in the UAE to retain its status as a top investment destination and minimise the issues faced by the companies. Tax group is one such beneficial provision under the UAE VAT law.
As per the UAE VAT law, the Tax Group can be defined as 'Two or more companies persons registered with the tax authority for tax purposes as a single entity under the person under the provisions of the VAT Decree-law'. Certain predefined conditions are to be met to form a tax group. Forming a tax group can be initiated online or by applying for the company representative to the Federal Tax authority (FTA). The conditions for forming a tax group include the members of a tax group not being the members of another taxed group. The companies in the tax group can be based in different Emirates in the UAE.
There are both advantages and disadvantages of forming a tax group in the UAE. The companies looking to form a tax group should consider all the pros and cons before forming a tax group.
The following are minimal conditions required to form a tax group:
- Two or more individuals in the tax group shall be related, i.e. the individuals must not separate on the financial, economic, or regulatory level, where one individual can control the other either by the law or through the acquisition of company's shares or voting rights in the company.
- All the member firms in a tax group shall have a place of establishment in the UAE; one or more related individuals must manage the other business.
Tax Registration Number (TRN)
Tax Registration Number (TRN) is a unique tax identification number assigned to an individual tax entity in the UAE. Companies in the UAE use the TRN number for all tax-related purposes, i.e., at the time of generating the invoices, making VAT payments and filing VAT returns etc. FTA assigns a single TRN for the whole tax group in the case of the tax group, and the member companies forfeit any previous TRNs assigned to them when a tax group is formed.
Reasons for deregistering a Tax Group in the UAE?
A tax group faces certain disadvantages. Sometimes, it is not feasible for the tax group to operate as a single tax entity for many reasons. In such cases, the tax group is allowed to be amended or deregistered. The following are some of the reasons for deregistering a tax group:
- If any of the tax group member companies fail to qualify the conditions required for the tax group, the tax group must be amended or deregistered.
- When in a tax group, all the group members should work in tandem on all tax-related matters. A single mistake of information from a member can adversely affect the whole group.
- The tax group, at times, may miss the filing deadlines and pay heavy fines due to delay of returns data submission by a few member companies in the group.
- When an inspection occurs, all the group entities should coordinate and support each other, which can cause complications.
- There is always a high risk for the officer who is ordered to sign as only one signatory needed for all the tax group-related matters.
Steps Involved in Deregistration of Tax Group
The tax group can follow the below steps for deregistration:
- The representative appointed by the tax group shall inform the Federal Tax Authority (FTA) within 20 days if any of the members becomes ineligible or the group decides to deregister.
- The FTA will thoroughly study the tax group's request and informs the decision regarding whether the tax group shall be amended or deregistered to the representative within ten days.
- The old TRN numbers of the group members will be reinstated when a tax group is deregistered.
What Happens After the Process of Tax Group De-registration?
The erstwhile members of the tax group can use the old reinstated TRN number when dealing with all tax-related members. Every company can carry out all the activities as a single taxable entity.
Jaxa Chartered Accountants, with offices all over the UAE, have been at the forefront of VAT implementation for UAE companies. Our expert consultants guided and assisted client companies with all VAT related matters when VAT was relatively a new tax unknown to many companies, thereby keeping regulatory-related troubles at bay. Please Contact Us for any queries related to VAT and tax groups. We'd be happy to serve you.