Anatomy of Related Parties in a Tax Group

A business entity is entitled to pay tax at the end of the financial year. The region of UAE has implemented the concept of VAT on 1^st Jan 2018, wherein the business entities are entitled to pay the VAT at 5 percent. Now, many at times it becomes difficult for the business entities to cope up with the tax proceedings, and non-payment of the same would lead to multiple penalties. To avoid such uncertain circumstances, the Emirati government has introduced the concept of a VAT group, which is a merging of two or more business entities with a common goal to divide the appropriate tax amount. However, the partners (or) related parties in a tax group needs to hold specific parameters.

This guide highlights the essential parameters that a business entity needs to hold to become a part of the Tax Group. If you are a business owner or investor and is concerned regarding paying the annual taxes, then you can proceed ahead with the tax-group option. However, this guide highlights the eligibility criteria that you can look forward to matching with your business entity. Before moving ahead, let’s start by understanding the basics.

What are Related Parties in a Tax Group?

In the business language, a tax-group is a collection of two or more entities that join together to minimize the tax-load at the end of the financial year, as the group of companies is entitled as one company. To proceed towards forming a tax-group, there are multiple steps that need to be taken to amend a tax-group.

Conditions for the Tax Group Parties

Any person or who is acting in the partnership should have any of the following:

Voting Rights:

• 50% of the voting interests or more
• 50% of the market value interest
• Each of the persons is related to a third person

Economic Practices:

• They should have a standard commercial objective
• One business entity must benefit the other business
• Supply of goods or services by different companies to the same customer

Financial Practices:

• One company must provide financial assistance to the other
• One company is not financially viable without other
• Common financial interest in the proceeds

Regulatory Practices:

• Common management proceedings
• Common employees whether or not jointly employed
• Common shareholders or economic ownership

It can be seen that getting involved in the tax group proceedings helps a business entity to share the tax burden. However, getting qualified to become a member of the tax-group involves various parameters, which need to be sorted through the documentation process, and a minor error might abort the complete process. Therefore, it is advised to proceed ahead with the professional experts as they are well-versed with the government rules and tax=group proceedings.