In brief

On 9th December 2022, the UAE Ministry of Finance released the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘Law’) and updated the related FAQs section.

With the announcement of the Corporate Tax (‘CT’), businesses have now started assessing its impact on their operations and legal structure. Any structural changes in business models could impact previously established VAT positions. Accordingly, any changes may have VAT consequences and should be separately assessed from a UAE VAT perspective to prevent non-compliance.

In detail

Here are some areas for consideration where the CT Law may impact UAE VAT compliance.

  • Changes in the corporate structure made from a CT perspective can result in any of the following:
    • Incorporation of new holding companies, subsidiaries, or branches
      • It would require an assessment of the UAE VAT registration obligation for the new entities, VAT compliance considerations, tax invoice requirements or other relevant documentation for VAT purposes, including record-keeping obligations and changes to details in the FTA portal.
    • Liquidation of existing holding companies, subsidiaries or branches
      • UAE VAT de-registration obligations, submission of final tax returns, VAT implications of the settlement or distribution of assets or liabilities and claiming of outstanding refunds, all of which could trigger FTA reviews or desktop audits.
    • Changes in the ownership of group entities
      • UAE VAT implications arising from transfers or conversions of shares and the respective payments and contributions between group entities and shareholders in the UAE and abroad, which may impact eligibility for VAT grouping.
    • Restructuring for CT grouping/consolidated filings
      • Impact on the UAE VAT grouping, considering aspects such as the volume of intra-group transactions, the VAT payable or refundable position of each of the group entities for offsetting purposes, and the simplification of the VAT administrative burden.
  • New intra-group transactions resulting from CT restructuring

VAT implications may arise from any recommended intra-group transactions from a CT and/or domestic Transfer Pricing perspective, such as royalties, loans, or charges for intra-group services, as well as any recommended transfer of assets or liabilities, with a special focus on the VAT Transfer of Going Concern simplification rules

  • Transfer pricing valuations and adjustments

The new valuation or transfer pricing adjustments could impact the valuation for VAT purposes of supplies between related parties and customs valuations for imports.

  • Retrospective deemed supplies

The insertion of royalties or charges to give effect to management functions or other supplies that were informally in place in the past could have a potential impact from a VAT perspective (particularly taking into consideration the potential application of deemed supply rules to historical supplies).

  • Irrecoverable VAT

The input VAT that is not recoverable by the taxable person (e.g. entertainment, cars in personal use, etc.) would, in most cases be also non-deductible for CT purposes leading to a permanent difference.

 

KPMG has a team of experienced tax specialists that can help you assess the VAT implications for your business and your tax position resulting from the introduction of Corporate Tax, advise on the appropriate tax treatment, prepare clarification requests, or represent you in front of the FTA as registered tax agents.

We are happy to discuss your specific circumstances with you and determine the way forward should you have any questions or concerns in this regard. Our support can be provided as part of a broader CT impact assessment or on a standalone basis. Please get in touch with your usual KPMG contact or any of the tax professionals below.

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