Value Added Tax (VAT) and Holding Company
The United Arab Emirates (UAE) has a number of regulations that cover a wide range of topics, including where goods and services are supplied. Businesses operating in the UAE must be aware of these regulations in order to guarantee compliance and prevent possible fines. VAT on holding companies in UAE depends on activity. Passive holding may be exempt, but active roles may need to register & collect VAT. The purpose of this blog is to shed light on the UAE’s place of supply regulations for VAT.
What is the VAT Return?
The official form that must be filled out by the Taxable Person and sent on a regular basis to the Federal Tax Authority (“FTA”), outlining any input tax recoverable and output tax owed together with any additional information that must be supplied. We’ll call it the “VAT return” in this guide.
The FTA portal should be used to submit all VAT returns online. The Taxable Person or another authorized representative (such as a tax agent or legal representative) may file the return on the Taxable Person’s behalf.
Tax Period
- A Tax Period is a time frame that is designated for the computation and payment of the Payable Tax.
- The three calendar months that finish on the date the FTA determines will be the regular Tax Period that applies to a Taxable Person. A particular set of Taxable Persons may, at the FTA’s discretion, be assigned a different Tax Period (e.g., in some situations firms may be required to file VAT returns on a monthly basis).
- If a Taxable Person is given the regular Tax Period, he may ask for the Tax Period to end on the day of his choosing; the FTA may, at its discretion, grant this request.
- The FTA must receive the VAT Return by the 28th day after the end of the relevant tax period, or by any other date specified by the FTA. In cases when the FTA is the recipient of a payment, said payment must reach the FTA by the same deadline.
Businesses that exceed either mandatory or voluntary registration thresholds may have to register for VAT, or they may be exempt from it.
Mandatory Registration
A company is required to register if:
Either the business has exceeded the mandatory registration threshold for the entire value of its taxable supply and imports during the preceding 12 months, or it expects to surpass the necessary registration threshold within the next 30 days.
The required minimum amount for registration is AED 375,000. International firms are exempt from this threshold.
Voluntary Registration
In case a business doesn’t meet the mandatory registration criteria, it can still submit an application for registration.
The aggregate amount of its taxable imports, taxable supplies, and taxable costs over the preceding year exceeds the level for voluntary registration, or
The company expects that within the next thirty days, the entire value of its taxable imports, taxable suppliers, and taxable expenses will above the threshold for voluntary registration.
AED 187,500 is the voluntary registration barrier.
Tax Group
- If all of the following requirements are satisfied, two or more people operating businesses may apply for tax registration as a tax group: Everybody needs to have a fixed establishment or place of establishment within the State. b. Related Parties will be the relevant parties. c. In a partnership, one or more company partners will have the ultimate say over the other partners.
- When a Tax Group registration application is denied by the Authority, it will be decided under the Executive Regulation of this Decree-Law. Unless specifically stated in an executive regulation, a person conducting business is not permitted to possess more than one Tax Registration Number.
- In case Related Parties fail to apply for Tax Registration as a Tax Group under Clause (1) of this Article, the Authority may evaluate their relationship based on their financial, economic, and regulatory practices in their business operations. If their relationship is proven, they will be registered as a Tax Group under the conditions and controls outlined in this Decree-Law’s Executive Regulation.
- The Authority may add or remove Persons from the Tax Group registration upon request from the Taxable Person or in accordance with the instances mentioned in the Executive Regulation.
- The Authority may deregister the Tax Group registration in accordance with this Article subject to the conditions outlined in the Executive Regulation of this Decree-Law.
Holding companies
Passive holding company
- The main purpose of a passive holding company is to hold stock in other companies. Since “holding shares” does not involve exchanging goods or services for payment, it is typically not regarded as a taxable supply for VAT purposes. Therefore, it is unlikely that a holding company of this type would have to register for VAT if it is not involved in any other activities, as it is not considered to be “in business” or carrying out a “economic activity” for VAT purposes.
- This passive holding company would not be able to claim its shareholding-related expenses back from tax authorities if it did not register for VAT. It is doubtful that a passive holding firm would incur substantial costs beyond its annual audit fees or initial legal formation charges, though, as there would be no active trading.
Active holding company
A holding company may be categorized as “active” for a number of different reasons. In a particular case, the business is a buyer and seller of shares in other businesses, with the intention of selling those shares at a profit in the future. According to articles 46 of Federal Decree-Law No. 8/2017 and 42 of Cabinet Decision No. 52/2017 on the Implementing Regulation of Federal Decree-Law No. 8/2017 on the Value Added Tax, this “trading in shares” activity is eligible as an exempt activity for UAE VAT purposes. As a result, there is no VAT associated with these operations. Nevertheless, the company is not allowed to deduct any VAT paid on expenses directly related to exempt activities because they do not satisfy the requirements specified in Federal Decree-Law No. 8/2017, article 54.
Disclaimer: Above all information is for general reference only and sourced from internet, before making any kind of decision please visit the authorized websites of authorities and service providers.