Everything you need to know about Tax Groups in the UAE: FAQs

What is a tax group?

A tax group under UAE VAT is when two or more businesses have registered as a single taxable person. These businesses must comply with certain eligibility criteria to be allowed to form a tax group. One VAT Tax Registration Number (TRN) is issued for each tax group, to be used by all of its members, and the group must file only one tax return collectively.

What does being in a tax group imply?

Being in a tax group has the following effects:

• Members of a tax group can make supplies and purchases with each other, for which no VAT will be charged. VAT will be applicable for transactions with entities outside of the group, however.

• A tax group is issued only one VAT registration number, as it is registered as a single entity.

• A tax group is only required to file one return, which includes all the supplies and purchases made by the members of the group.

• Every tax group will have to appoint one of its members as their representative member. Every supply and purchase made by the members of the group will be under this representative member’s name.

What criteria must be followed to form a tax group?

The following eligibility criteria must be followed for the FTA to grant permission to form a tax group:

• Business criteria Every individual member of a tax group must be running a regular business that can be located in any place and is independent of its employees.

• Legal person criteria Every individual member of a tax group must be a legal person who has a legal identity of their own and can enter into contracts under their own name. 

• Establishment criteria Every individual member must be a resident of the UAE. This can be accomplished by having either a primary business establishment or a fixed establishment in the UAE. According to the FTA, a primary business establishment is the place where important management decisions that influence a business are taken. A fixed establishment is another place where necessary human and technical resources are provided to run a business.

• Related parties and control criteria Every individual member must be related to the others, meaning that they share economic, financial, and organisational ties. Economic ties mean that there is mutual interest amongst the members in the proceeds of the business, financial ties mean that one member’s business benefits another member’s business, and organisational ties mean that the businesses are located in the same property.

Within a tax group, one member must have control over the rest. Control can exist during the following situations:

• When one or more legal person in a formal partnership has at least one of the following:

1) At least 50% voting interest in all the companies owned by the legal persons of the partnership, when put together.

2) At least 50% market value interest in all the companies owned by the legal persons of the partnership, when put together.

3) Control by some other way.

• When two or more legal persons of a partnership are associated with another legal person, who is from the same partnership.

What criteria must government entities follow when forming a tax group?

In addition to the general criteria, which are applicable to everyone, government entities must also comply with the following to form a tax group:

• A designated government entity is to be a part of tax groups with other designated government entities only.

• A designated government entity cannot be a part of tax groups with a non-designated government entity.

• A government entity that is not designated can be a part of tax groups with other legal entities for which the usual tax group rules apply.

A designated government entity is one that has been designated by the Cabinet and is required to register for VAT.

What is the process for forming a tax group?

The process for forming a tax group is as follows:

• After each member who wishes to form a tax group has individually complied with the eligibility criteria, it must be determined whether the group as a whole is eligible to register for VAT. The group will be eligible if they comply with either one of the following criteria:

  • If at least one member has satisfied the registration requirements.

  • If the total value of VAT-liable supplies and purchases made by the prospective group complies with the registration requirements.

• The next step in the registration process involves the members of a tax group nominating one member among them as the representative member of the tax group. The tax returns of the group will be filed in the name of this representative member. 

• If none of the members of the group have been previously registered for VAT, then the potential representative member will have to submit a VAT registration application and tax group registration application. However, if the members have been registered for VAT previously, then the representative member only needs to finish the tax group registration application.

Can changes be made to a tax group?

The following changes can be made with regard to the members of a tax group:

• Addition of members to a tax group

• Removal of members from a tax group

• Change of representative member of a tax group

• Disbanding a tax group

How can more members be added to a tax group?

An additional member can be added to a tax group if the representative member of the group fills out a tax group amendment application and sends it to the FTA.

How can members be removed from a tax group?

The representative member can send in a tax group amendment application to the FTA requesting to remove a member from the tax group. The removed member may have to fill out a VAT registration application if they are eligible and required to register but have not registered before.

If the member is to be removed because they are no longer eligible for tax grouping, then the representative member must inform the FTA within 20 days of the change in eligibility..

Can the representative member of the tax group be changed?

The representative member can nominate a different member of the group as the new representative member by submitting a tax group amendment application to the FTA for approval. Before doing this, they must get consent from the new proposed representative member.

How can a tax group be disbanded?

To disband or cancel a tax group, the representative member must submit a tax group deregistration application to the FTA. The members must each submit a VAT registration application if they are eligible and required to register but have not registered before.

If the tax group is to be disbanded because it is no longer eligible for tax grouping, then the representative member must notify the FTA within 20 days of the change in eligibility.

Can an application to form or amend a group be rejected by the FTA?

In general, if the FTA thinks that forming, amending, or disbanding a tax group would result in a prominent risk to the public revenue, then they may refuse the group’s application.

The FTA may refuse applications to form a tax group or add members to a tax group if:

• The members who have applied fail to meet the eligibility criteria to be a part of a group.

• The FTA thinks that the change will result in a serious risk of tax evasion.

• The FTA thinks that the change will result in an overall reduction of the taxes due to them.

• The FTA thinks that the change will result in a significant increase to their administrative burden.

Can an application to remove members or disband a group be rejected by the FTA?

In general, if the FTA thinks that forming, amending, or disbanding a tax group would result in a prominent risk to the public revenue, then they may refuse the group’s application.

The FTA may refuse applications to remove members or disband tax groups if:

• Removal of the specific member will make it seem like the member is able to register, whereas no steps have been taken for their registration at the time of applying for their removal.

• The FTA thinks that approving the application creates a serious risk of tax evasion.

• The FTA thinks that the change will result in an overall reduction of the taxes due to them.

• The FTA thinks that the change will result in a significant increase to their administrative burden.

When can the FTA restrict a tax group from forming?

The FTA can refuse to allow tax grouping if: 

• The transactions between the members are insufficient; there are few or no meaningful transactions amongst members of the tax group.

• Allowing the group to form will make it difficult for the FTA to audit them because the group does not share any common features of an audit.

• Allowing the group to form will result in only one advantage, namely a cash offset benefit.

• Allowing the group to form would add to the workload of the FTA, which includes the points mentioned above as well as others.

How are VAT debts handled in a tax group?

Members of a tax group will be collectively liable for any possible VAT debt and other obligations that the group faces throughout the period during which they were members. This means that even if a member leaves the tax group, they will still be liable for the period of their membership.

Can the FTA force you to form a tax group?

If you and another business share sufficient economic, financial, and organisational ties to split the applicable VAT amongst you, then the FTA may force you to register as a tax group. 

What are the benefits of forming a tax group?

These are the benefits of forming a tax group:

• Every member of a tax group is considered a single taxable person for VAT purposes. This simplifies the accounting process for VAT, as well compliance reporting like VAT tax returns, since they now only need to be filed at the group level instead of individually.

• No VAT will be charged for supplies and purchases made between members of a tax group. However, VAT is applicable for transactions made with others outside of the tax group.