A group of companies are amalgamated for VAT registration and are treated as a single company registered for VAT.
Advantages of Tax Grouping
The member will be liable for taxation on business-related supplies made to the third party which is outside the group. It makes the accounting easier and centralized. The goods and services transactions made between the group members don’t need VAT. There is only one VAT for the whole group. Hence, there is a single return for VAT for the whole group.
Disadvantages of Tax Grouping
The one disadvantage is that all members of the group are liable for debts and the tax due. There is a need for new VAT registration number which covers all the group members as a whole.
In UAE, for VAT grouping, two or more entities can be registered as a tax group. There are some norms to follow in UAE for tax grouping. One of the conditions for registering the group as a single entity is, they should have a place of establishment in the UAE for each person or company. There is another condition that the persons should be related. It is also given that the members of the group control one another.
Under the VAT law, there is an executive regulation of the law to decide whether the government finds any fault to reject the application for tax grouping. The Executive regulation has a clause that says an entity which is doing business cannot have more than one tax registration number.
Value Added Tax is a tax applied on goods and services. At every stage of its distribution, the tax applicable increases with the increase in the value. VAT is an indirect tax which depends on the consumption of a commodity or service. It is not related to the income or revenue generated. There are more than 160 countries where VAT is applicable.
There are conditions as per the Law’s Executive regulation which entails that the authority has the power to register the parties as a group if the relation among them is established beyond doubt. If the parties don’t apply to a combined group, the authority will enquire about and look into the details of their relationship to their respective economical and financial practices in the business they are involved in. The authority has the power to deregister a tax grouping party according to the regulations of the law.
There is power designated to the authority to make changes in the regulation regarding taxing the companies as a group. It can include or segregate the parties depending on its discretion. There are many positive sides of Tax Grouping such as the advantage of treating the group as one entity and there are no two taxes for tow companies separately. There will be a single return per quarter. There will be ease of burden on the account’s administration. In case there is an intercompany business transaction, there won’t be any VAT charges. In this scenario, accounting will be simple. In the event of intra-group charges, there will be the benefit of cash flow. The chances of getting a penalty are minimized in this type of transaction. It will be much easier as regards system configuration and execution.
GCC Filings provides many services, and accounting and financial reporting are two of them. It also provides tax-auditing services to companies. It provides tax auditing and VAT registration services in UAE.