Basics of Tax Grouping and their Provisions

Every business entity needs to pay a certain amount to the government at the end of the financial year, referred to as “Tax.” Recently, the Government of the United Arab Emirates has implemented the VAT law that applies to the business entities at a rate of 5 percent. Now, this step has been helping the government to pave out new ways for revenue generation. To lessen the burden on the business professionals and to ease the process of payment, tax groups have been introduced. This article will take you through the concept of a tax group and its provisions, which are a must-know for business professionals. Let’s start by understanding the very basics.

What is a Tax Group?

The Tax Group is a fiscal unity that allows the business entities to register themselves with the Federal Tax Authority (FTA) as a single taxable person under the conditions of UAE VAT Law.

What is the Need of Tax Group?

The core reasons that make a tax group as a feasible option are:

  • All the registered entities will be treated as the “One” entity for the VAT purpose.
  • Any supplies made within the registered entities stand free of Tax.

To know more about the Tax Group and the registration process, you can read our blog Is Your Company Registered Under Tax Grouping?.

Provisions for a Tax Group

For registering under a Tax Group, the related parties shall be considered as Related Parties if they are associated in economic, financial, and regulatory aspects that include the following:

  1. Industrial practices would consist of at least one of the following:
  • A common commercial goal
  • The business entities should benefit each other
  • Supply goods or services by different businesses to the same customer
  1. Financial practices would include at least one of the following:
  • Financial support between the related parties
  • The financial condition of one business entity is not viable without the other business
  • Common financial interest
  1. Regulatory practices would include at least one of the following:
  • Common management
  • Common employees or jointly employed

Common shareholders or economic ownership

Amendments to a Tax Group

The related parties registered under a Tax Group have the right to request the Authority to do the following:

  1. Add another person to become a member of the Tax Group
  2. Remove one of the members of Tax Group
  3. Nominate another member of the Tax Group to be the representative member with the consent of other members
  4. De-register the existing Tax Group

Conditions for De-registering of a Tax Group

The Authority would de-register a Tax Group if the following conditions are met:

  • If the related parties no longer meet the requirements for registration as a Tax Group following the Decree-Law.
  • If there is no longer an association based on economic, financial and regulatory practices
  • If there are serious grounds that proves that the existence of the tax group would significantly decrease Tax paid to the Authority

In short, we can say that a business entity must be careful while proceeding towards the registration of the Tax Group. Now, to proceed alone with the registration or de-registration of a Tax Group might turn out to be a challenging task. It is recommended to take the help of tax experts who can guide you at every step. Some of the benefits that you will derive by availing the professional services would include:

  • The legal formalities will be carried out smoothly.
  • Complete tasks will be handled professionally.
  • Minimize the burden to a great extent
  • Maintains the accounting and audit process accordingly
  • Tasks will be completed according to the respective deadlines set.
  • Error-free and a faster process

JAXA Chartered Accountants is one of the best tax consultants in the UAE who has been helping numerous clients simplify their tax proceedings. Our experts are well-versed with the Tax and VAT proceedings and can help you sort your business books at ease by providing customized solutions. To register or de-register a tax group for your business, feel free to have a word with our experts. Contact us today-we’d be glad to assist.