Why Is There a Need for De-Registration of a Tax Group?

The UAE is one of the world’s top countries with a robust business-friendly ecosystem supporting local and international businesses. Value Added Tax (VAT) was introduced recently and came into effect from 1st January 2018, and all eligible companies are required to file annual VAT returns. The business-friendly framework meant the federal government had allowed the formation of the tax group, which will help businesses in reducing the administrative and compliance costs and makes the inter-company goods transfer mechanism simple.

What is a Tax Group?

The Federal Tax Authority (FTA) by the decree of 2018 has enabled the formation of the tax group under certain specified conditions. The tax group is broadly defined as two or more firms or limited liability companies registered with the tax authority as a single tax entity for VAT purposes under the law’s provisions.

There are certain conditions to be met for firms to form a tax group. The requirements are as follows as below:

1. All the companies registering as a tax group will require establishment or fixed establishment inside the UAE.
2. The individuals applying for tax group should be related parties, and one or more persons conducting business in partnership also has control in other firms in the tax group. If directors or shareholders of one firm should be a director or shareholder of another firm, then both the firms can form the tax group.

The Federal Tax Authority takes the final decision on registration on the tax group. It thoroughly evaluates every application for details such as party’s relations to each other, financial and business practices etc. before approving the application for tax group.

What is De-registration of a Tax Group?

The tax group, once approved and registered under the FTA, will be provided with a Tax Registration Number (TRN). The tax group will have to file VAT returns accordingly. There are many reasons a group member may need to leave the tax group by his own will or adhere to any compliance issues. In such cases, the tax group can be either de-registered or amended. When a tax group is amended, the new tax group is issued a new TRN, and the companies leaving the group will have their old TRN reactivated.

Need for De-registration of Tax Group

The below reasons can be a few reasons why the tax group needs to be de-registered:

1. The members registered in the tax group do not meet the essential requirement of the tax group. For example- if group members decide to move the place to establish outside the UAE. The members are required to work together to submit timely VAT returns and avoid delays.
2. The person of one group member company must have control in other companies within the tax group. When a tax group fails to meet this requirement and have no longer associated based on financial and compliance practices, they can no longer work as a tax group for VAT purposes and are required to be de-registered.
3. Suppose the Federal Tax Authority (FTA) has strong reason to link any tax group to tax scams that may put the reliability of the nation’s tax system at jeopardy. The tax group can be de-registered quoting the cases of possible tax evasions and other criminal activities in the area of tax.
4. In the case where the Federal Tax Authority (FTA) has a reason to believe that formation of any Tax Group has significantly reduced the tax paid to the authority.

In all the above cases, the FTA may require the tax group to be de-registered. The process of tax group de-registration involves a representative of the tax group working with FTA to initiate and complete the process of tax group de-registration. Once the companies are out of the tax group, they can reactivate their previous Tax Registration Number (TRN) and continue to file their VAT returns individually.

How Can We Help?

We at Jaxa Chartered Accountants assist our clients by providing the right advice based on the clients’ requirement. We ensure all our clients adhere to compliance and avoid any unwanted regulatory hassles. We can represent a tax group and work with the tax authority in de-registering the tax group. Please Contact Us in case you have queries. We’d be happy to help!