What are the conditions to form a VAT group?

Article (4) VAT Group Each Member State may treat the VAT Group as a single Taxable Person in accordance with the rules and conditions it puts in place for that purpose. A VAT Group means two or more Corporate Persons who are Residents of the same Member State. Chapter Two Supplies within the Scope of the Tax

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.

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