UAE: Corporate tax law effects on VAT compliance

The UAE Ministry of Finance released on 9 December 2022, the Federal Decree-Law No. 47 of 2022 [PDF 441 KB] on the taxation of corporations and businesses and updated related “frequently asked questions” (FAQs) section. The corporate tax law, which will be effective for financial years starting on or after 1 June 2023, may have the following effects on value added tax (VAT) compliance:

• Changes in the corporate structure made from a corporate tax perspective can result in any of the following:
  • Incorporation of new holding companies, subsidiaries, or branches may require an assessment of the 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 federal tax authority (FTA) portal.
  • Liquidation of existing holding companies, subsidiaries or branches may result in 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 may result in 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 affect eligibility for VAT grouping.
  • Restructuring for corporate tax grouping/consolidated filings may affect the 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.
• VAT implications may arise from any recommended intra-group transactions from a corporate tax 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.
• The new valuation or transfer pricing adjustments could impact the valuation for VAT purposes of supplies between related parties and customs valuations for imports.
• 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).
• 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 corporate tax purposes leading to a permanent difference.

Read a December 2022 report prepared by the KPMG member firm in the United Arab Emirates