All about Tax Groups according to Federal Decree-Law No. (8) of 2017

The recent implementation of the Value Added Tax in the United Arab Emirates was a brilliant move on the part of the Government of the country. The application of this new tax will not only help the country in getting a new source of the fund but will also assist the company in acquiring new investors and new clients. The Federal Decree-Law No. 8 of 2017 deals with the importance of the Value Added Tax and the impact it will have on people and businesses. One of the relevant topics which the Federal Decree talks about is Tax Groupings.

What is Tax Grouping?

According to the Federal Decree-Law No. 8 of 2017, there is an existence of a tax group when two or more people or entities have been registered with the Authority for Tax purpose as a single taxable entity. Tax grouping can have a profound effect on the profitability of a company which makes tax grouping a very lucrative and profitable option for businesses.

According to this principle, two or more business entities can register themselves with the UAE Federal Tax Authority (UAEFTA) as just one entity. This will allow them to be taxed as a single entity according to the Federal Decree No. 8.

Not all the business entities are required to be registered for Value Added Tax (VAT). There are specific parameters that dictate if a business entity can be registered or not. These criteria are:

• If the turnover of the company is more than AED 375,000, then the company must register for VAT
• If the Annual Turnover of a company is between AED 187,500 and AED 375,000, then it is optional for a company to register for VAT.
• IF the Annual turnover of a company is below 187,5000, then a company need not register for VAT. Though these companies do not need to register them with the FTA, it is suggested that every company must register for the VAT due to the various benefits.

The Federal Decree No. 8 aims to enumerate the importance VAT and also explains the various impacts and the additional feature which should be kept mind by a business entity. One of the features is Tax Grouping of the business entities.

About Tax Group

Two or more business entities which are conducting business in the UAE can apply for Tax Registration as a Tax Group when the following criteria are met:

1. Each shall have a Place of Establishment or Fixed Establishment in the State.
2. The relevant persons shall be Related Parties.
3. One or more persons conducting business in a partnership shall control the others.

It is to be kept in mind that all the criteria as mentioned above need to be met by the business entities before applying for a Tax Group. The authority may reject the application to register as a tax group, but the Executive Regulation of this Decree-Law will determine this decision. Once registered with the FTA, no business entities can be part of any other tax group.

The Federal Tax Authority also has the power to deregister a Tax Group if the criteria, as mentioned above, are not met. There may also be a case that some of the parties meet the requirements but the others don’t. In such a case, the FTA has the power of removing or adding business entities to a particular tax group.

In case the business entities do not apply for Tax Registration as a Tax Group under Clause (1) of this Article, the Authority possesses the power to assess their relationship based upon their economic, financial and regulatory practices in business and register them as a Tax Group, only if their connection was proved according to the Conditions as specified by the Executive Regulation of this Decree-Law.

Tax grouping can have a profound effect on a business entity. Being a member of a tax group will help enhance the profitability of the company, which will in-turn encourage new investors to invest in a company. This is why it is imperative to handle the tax grouping process properly. One of the best ways to be assured that there is no problem in the tax grouping process is to avail the services of an experienced third party which will not only see to it that the company does not face any problem in the future but will also advise the management periodically about the decisions they can take.

The experts at JAXA Chartered Accountants will understand the business and will advise the management about the best step that the company can take. The experts at JAXA can provide customized solutions for the problems being faced by the business. To know more about the various services JAXA provides Contact Us. We will be happy to assist you.