VAT Group Registration
In this article, let us understand the benefits and requirements of VAT group registration in the UAE. In simple terms, VAT group registration allows two or more related VAT-registered companies to register as one VAT group, file a single VAT return, reduce administrative compliance, and treat intra-group transactions as outside the scope of VAT, provided they meet the VAT registration thresholds and submit a group registration application with the required documents to the Federal Tax Authority. Before that, make a note that VAT group registration requirements are entirely different from Corporate Tax group registration. Read more to know Corporate Tax Group registration.
If you are a UK-based entrepreneur, start-up, or SME operating multiple related companies in the UAE, this matters because the right VAT group structure can simplify compliance and improve day-to-day tax management while keeping your business aligned with FTA rules. A VAT group can be formed by two or more companies that are VAT-registered in the UAE, where both companies are related parties. This guide also explains eligibility, how to apply, why an application may be rejected, and when a VAT group may need to be deregistered.
Who is a related party for VAT purposes?
Article 9 of the VAT Executive Regulations outlines who is a related party and, in practice, VAT grouping also depends on meeting broader eligibility conditions. A related party can be defined in simple terms as two or more legal persons who are connected through common ownership (common shareholder) or common control (common manager). Only legal persons can join, and each member must have a fixed establishment in the UAE. The group members should also be carrying on ongoing taxable business activities. Examples are as below:
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ABC LLC is owned by Mr. A 50% and Mr. B 50%. XYZ LLC is owned by Mr. A 50% and Mr. Z 50%. Since Mr. A is the common shareholder in both ABC LLC and XYZ LLC, these companies can be considered as related parties for VAT purposes.
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If both the above companies have different shareholders, but Mr. X is the manager in both licenses. Due to the control of Mr. X in both companies, the companies can be considered as related parties.
VAT Group Registration Application to FTA
A separate application is required to be submitted to FTA for forming a VAT group. When there are 2 or more companies, a company needs to be appointed as a Representative Member of the group. Other companies in the group are named as members. The VAT group registration application shall be done from the portal of the representative member. The administrative responsibilities, tax compliance, and communication with the Federal Tax Authority are handled by the representative member, including VAT return filing, amendment application submission, and removal and adding of members. Approved groups operate under one tax registration number, and all members are jointly liable for VAT dues and penalties incurred during group membership. Below are the additional documents to be submitted to FTA while submitting the VAT group registration application.
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No objection letter from all member companies mentioning that they have appointed the representative member to act on behalf of the VAT group
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Group structure showing the common ownership or control
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Group turnover declaration.
Once the VAT group registration application is approved, the individual VAT number will be suspended and a new tax registration number will be issued for the group, so members cannot use their old VAT numbers while the registration remains active. At the time of dissolving the VAT group, the suspended stand-alone VAT numbers will be reactivated.
The VAT group application will be reviewed by FTA in 20 business days and necessary action will be taken either with approval of the application or requirements of additional information, if any.
VAT Group Registration Application to FTA
If there are 2 or more companies who want to register as a VAT group (the companies not registered for VAT already) they are required to meet the VAT registration threshold as below:
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Each member or one member satisfies the UAE mandatory VAT registration threshold of AED 375,000.
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The group in total is eligible for VAT registration based on the combined position of the group entities through taxable supplies or taxable expenses.
Once approved, the businesses will file a consolidated VAT return instead of their own VAT returns.
Potential situations where FTA rejects the VAT Group registration application
Below are a few scenarios where FTA may reject the VAT group registration application:
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If the applicants seeking VAT group registration as a potential VAT tax group or single taxable entity do not meet the eligibility criteria for creating a VAT group; designated government bodies may group only with other designated government bodies under special rules.
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If the authority believes with a strong group that the VAT group registration application is for tax evasion, approval of the application may lead to an administrative compliance burden to the Federal Tax Authority.
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If the ownership structure or evidence of common control is unclear, the FTA may also reject the application.
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The member of the VAT group registration application is not a legal person, and only legal persons can form a VAT tax group.
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The authority believes with strong grounds that the approval of VAT group registration will lead to a significant decrease in tax revenue.
Benefits of creating a VAT group
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Single VAT return: The representative member files only one VAT return, or a single consolidated VAT return, for the entire group on behalf of all the companies that are part of the group.
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Less administrative compliance: Since a single VAT return is required to be submitted, the administrative burden on the companies in the VAT group may be lower, and centralized VAT reporting can reduce administrative costs, simplify VAT management, and deliver cost savings.
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Intra-group transactions: The transactions happening between the companies in the VAT group are outside the scope of VAT. As the VAT group files a single VAT return, internal transactions within the group do not trigger unnecessary VAT payments between group members, which can improve cash flow and cash flow management. The net result will always be zero. VAT group registration is always an advantage for companies that do transactions between them.
However, group members are jointly liable for the group’s VAT liability, which can increase financial risk despite these benefits.
De-registration of VAT Group
In certain situations, the VAT group shall be de-registered, and the VAT group TRN is cancelled upon de-registration. The representative member is required to submit the application for VAT group de-registration. Below are a few circumstances where the VAT group shall be deregistered:
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If the VAT group does not meet the criteria for remaining as a group for VAT purposes,
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The VAT group consists of 2 companies, and one of the companies is removed from the VAT group due to liquidation of the company or any other reason.
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The group does not satisfy the threshold of taxable supplies / taxable expenses for voluntary registration ( AED 187,500 in the previous 12 months or expected to cross in the coming 30 days )
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If the group no longer meets the VAT registration threshold for mandatory registration, or only voluntary registration applies.
Once the group is dissolved, the former members go back to filing their own VAT returns under their reactivated numbers, where applicable.
Once de-registration is mandatory, the application shall be submitted by the representative member within 20 business days from the date the conditions for de-registration are met. The delay in applying for de-registration of VAT groups can attract administrative penalties.
FAQ
1. What is VAT Group Registration?
VAT Group Registration allows 2 or more related VAT registered businesses to form a group, whereby one VAT return can be filed and transactions between members can be considered VAT-exempt.
2. What is considered a related party?
A related party refers to any entity that is held with a common interest by an entity, such as a common shareholder or a common manager (Article 9 of VAT Executive Regulations).
3. Who can join a VAT Group?
Only entities can join a VAT Group. All entities must have a permanent establishment set up in the UAE and must conduct taxable activities.
4. How do I apply for VAT Group Registration?
An application must be made to the FTA. This must be done via the representative member. As part of the application, you will need to provide a no-objection letter from all members, a group structure and an agreement from all members stating their group turnover.
5. What is the role of the representative member?
All communication with the FTA should be handled by the representative member. This includes filing VAT, amending, adding/removing members from the group.
6. How long will the FTA take to check my VAT Group Application?
The FTA will process the application for VAT Group Registration in 20 business days. If approved, they will notify you, if not they will ask for further information.
7. What happens to my individual VAT numbers once the group has been approved?
Individual VAT numbers will be put on hold and you will be issued with a new Tax Registration Number. Your old numbers will not be able to be used whilst you are in the group. If you leave the group your old VAT numbers will be reissued.
8. What are the advantages of VAT Group Registration?
It means you will only need to file one VAT return, less administration is required and intra-group transactions will be VAT exempt improving cash flow. However, members are jointly liable for the group.
9. Why might my VAT Group Application be turned down by the FTA?
If you fail to meet the requirements for being eligible, there isn't enough evidence to show control, a member isn't an entity or there is risk of tax evasion or loss of revenue, then the application may be rejected.
10. When should I de-register my VAT Group?
If your VAT Group no longer meets the VAT requirements or requirements of the members (such as only one company remaining) then you must de-register. You should apply via the representative member within 20 business days.
To learn more about VAT Group Registration Benefits and Requirements, book a free consultation with one of the Flyingcolour team advisors. Failure to de-register on time can leave former group members exposed to continuing VAT liability and VAT payments obligations until the change is processed.
To learn more about VAT Group Registration Benefits and Requirements, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.