Can two related companies register as a VAT group?

Article 14 - Tax Group 1. Two or more Persons conducting Business may apply for Tax Registration as a Tax Group if all of the following conditions are met: a. Each Person shall have a Place of Establishment or Fixed Establishment in the State. b. The relevant Persons shall be Related Parties. c. One or more Persons conducting Business in a partnership shall control the others. 2. The Executive Regulation of this Decree-Law will determine the instances where the Authority may reject the application to register a Tax Group. 3. Any Person conducting Business is not allowed to have more than one Tax Registration Number, unless otherwise prescribed in the Executive Regulation. 4. If Related Parties do not apply for Tax Registration as a Tax Group under Clause 1 of this Article, the Authority may assess their relation based on their economic, financial and regulatory practices in Business, and register them as a Tax Group if their relation was verified according to the controls and conditions specified by the 10 Article amended as per Federal Decree-Law No. 18 of 2022. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 11 Executive Regulation of this Decree-Law. 5. The Authority may deregister the Tax Group in accordance with the Clauses stated in this Article as per the conditions specified in the Executive Regulation of this Decree-Law. 6. The Authority may make changes to the Persons registered as a Tax Group by adding or removing Persons as requested by the Taxable Person or in accordance with the instances mentioned in the Executive Regulation.

Article 10 – Registration as a Tax Group 1. A Tax Group shall select one of its registered members to act as the representative member of this Tax Group. 2. A request to register a Tax Group shall be made by the representative member of that Tax Group. 3. The Authority should make a decision regarding any application submitted for registration of two or more Persons as a Tax Group within the period of 20 business days starting with the day on which it was received by the Authority. 4. Where a request to form a new Tax Group is approved, the Tax Group registration shall be in effect according to the following: a. From the first day of the Tax Period following the Tax Period in which the application is received; b. From any date as determined by the Authority. 5. The Authority may refuse the application for registration as a Tax Group, in any of the following cases: a. The Persons do not meet the requirements for Tax Group registration in accordance with the provisions of the Decree-Law and Article 9 of this Decision. b. Where there are serious grounds for believing that if the registration as a Tax Group is permitted, it would enable Tax Evasion or significantly decrease Tax revenues of the Authority or increase the administrative burden on the Authority significantly. c. Where any of the Persons included in the application is not a legal Person. d. Where one of the Persons is a Government Entity specified under Article 10 and 57 of the Decree-Law and the other is not. e. Where one of the Person is a Charity under Article 57 of the Decree-Law and the other is not. 6. The Authority may reject adding a Person to a Tax Group where that Person does not meet the requirements for Tax Group registration in accordance with the provisions of the Decree-Law or for the reasons mentioned under Clause 5 of this Article. 7. Where the Authority establishes that two or more Persons are in association as a result of their economic, financial and regulatory practices in Business, the Authority may register them as a Tax Group after considering the individual circumstance of each case, including the presence of the factors mentioned in Clause 2 of Article 9 of this Decision. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 9 8. The Authority may only register a Person as part of a Tax Group under Clause 7 of this Article if the two following conditions are met: a. The Person’s Business includes making Taxable Supplies or importing Concerned Goods or Concerned Services. b. If all the Taxable Supplies or imports of Concerned Goods or Concerned Services of the Business by Persons carrying on the Business would have exceeded the Mandatory Registration Threshold. 9. The Authority may reject the application of registration as a Tax Group if there are serious grounds for believing that registering the Related Parties would significantly decrease Tax revenue.

2.2.3. Establishment criteria Each member must be resident in the UAE, either by way of having its primary business establishment or as a consequence of having a fixed establishment in the country. A business establishment is usually the place where key management decisions affecting a business are made. A fixed establishment is a place which possesses the necessary human and technical resources sufficient to carry on a business. A foreign-owned subsidiary that has been established in the UAE can, under these criteria, qualify to be included in a tax group. A branch of a foreign-owned company can also qualify under the fixed establishment test. 2.2.4. Related parties (and control) criteria Each member must be related to the other to a sufficient extent. In this context, “related” is taken to mean they share economic, financial and organisational ties (either in law, shareholding or voting rights). One person must be able to control the members. Control exists between Two Legal Persons… …where one person, or two or …has any of the following: more persons acting in a formal i) a voting interest in those partnership arrangement1… companies of at least 50% when added together; or ii) a market value interest in each of those companies of at least 50% when added together; or iii) control by any other means …or where each of them… …is a related party with a third Legal Person Economic ties are indicated where, for example, there is a common interest in the proceeds of the business. Financial ties are indicated where, for example, one part of the business benefits the other. Organisational ties are indicated where, for example, you share common premises. Important: common sponsorship of two or more Legal Persons will, generally, give rise to the possibility of tax grouping but only where the control criteria can also be met in actuality. Where the sponsorship agreement is overridden by another agreement 1 Unless a formal arrangement has been entered into between partners, evidence of the informal nature of the arrangement and the ability for the parties concerned to exercise control will be required. 4 VAT Guide | Tax Groups | VATG101

Example 6 XYZ LLC is setting up in business as a sports shoe retailer. They have not yet begun trading but are in the process of fitting out the retail premises and purchasing stock prior to the opening of their first store. They begin incurring costs on 1 February and intend to begin trading on 1 April. They expect to incur VAT-bearing costs of AED 200,000 prior to starting business on 1 April and therefore may apply to be voluntarily registered. As XYZ LLC’s expected taxable expenditure in the following 30 days will exceed the Voluntary Registration Threshold, they may apply to be registered for VAT. 4.5. Tax groups Two or more persons carrying on a business are able to apply for a single tax group registration, and therefore be treated as a single taxable person by the FTA. In order to be a tax group:     each member of the Group must be a legal person (that is, not a natural person); each member must have a place of establishment or a fixed establishment in the UAE; the members must be related parties; and one or more persons conducting business in a partnership must control the others. As seen from the above conditions, each member must be related to the other to a sufficient extent. In this context, “related” is taken to mean they share economic, financial and organisational ties (either in law, shareholding or voting rights). One person must be able to control the members. For further information regarding tax group eligibility criteria, please refer to the Tax Groups VAT Guide (VATG101). The effect of a tax group registration is that the members of the tax group are treated as a single taxable person for VAT purposes. This means that:     supplies made between members of the tax group will be disregarded for VAT purposes and therefore no VAT is chargeable on intra-group transactions; only one VAT Tax Registration Number is issued for use by the group; the tax group submits only one tax return which summarises all supplies and purchases made by group members over the tax period concerned; and one member of the tax group will be appointed as its ‘representative member’. All of the VAT obligations of the tax group, and all supplies made and received by it, are carried out in the name of the representative member. Please note that the members of a tax group are jointly and severally liable for any and all VAT debts and other such obligations of the group for the period during which 15 VAT Guide | Taxable Person | VATG001