REGISTRATION OF FOREIGN COMPANIES- VAT UAE
UAE being business hub of the region has local offices and branches of many multinationals. A situation does arise where for VAT registration the management has to decide whether it falls in VAT Group or direct registration. The article is aimed at discussing such scenarios.
Scenario 1. A foreign company only sells taxable goods and services to UAE where a business in UAE imports and deals with customs. In such case the foreign company does not have to register for local VAT.
Scenario 2. A foreign company has a locally registered company and branches (of UAE entity) in UAE, who import from abroad and then supply locally (taxable goods). In such case if only one local company (being a legal person) then the local company should register for VAT (being place of Establishment – Article 1 of Decree Law) with local branches under same registration (being fixed establishment- Article 1 of Decree Law). Complete registration is covered under Article 13(1) of Decree Law.
Scenario 3. A foreign company has multiple local companies and branches of local companies. In instant case there are multiple legal persons and they can register as Tax group under Article 14 of Decree Law if they meet other conditions. If they do not meet other conditions of Article 14 then they will have to register separately. Branches should be registered with local parent companies.
Scenario 4. A foreign company has a branch in UAE through which it sells to UAE customers. The situation depends upon domicile of Branch. If the Branch of a foreign company is registered under Federal Law (2) of 2015 concerning commercial companies then the Branch itself is deemed to be domiciled in UAE (Article 330(2) of the Commercial Companies Law). The Branch can register directly under Article 13 (1) of VAT decree Law as domicile gives it legal status in UAE. Please do note that sometimes authorities write limited liability in front of Branch name which is indicative of its legal person status, while if they mention only branch of foreign company it may be constructed as not legal person. However exact status should be checked with authorities. A test can be if the Branch can enter agreements on its own then its a legal person while if it enters agreements on behalf of parent then its not legal person.
However Branches like those in free zones are considered legal entities of their parent companies and not a legal person on their own. In such case the parent company has to be registered with place of residence as branch in UAE under Article 13(1) of the Decree Law. Accordingly relevant Branch registration rules must be reviewed to ascertain if it has a local domicile (akin to legal personality) or is representing another legal entity.
Scenario 5. Foreign company has multiple branches in UAE through which it conducts business inside UAE. In this case if the Branches fall under domicile status (scenario 4) then they can register for tax group under article 14 of Decree law. If they do not fall under domicile status then they can register under Article 13(1) as place of establishment of legal person residing outside.
In case some of the branches are falling under domicile status while others are not, then it would be prudent to make tax group for branches under domicile status while other branches not under domicile status should be represented by in tax group by their parent company (legal person) with them being place of residence of parent company in UAE. This view is consistent with motive behind Article 38 of Federal Law No 7 where the multiple independent persons engaged in same business are held together for purpose of settlement of tax case.
Scenario 6. A foreign company sells through a sales office in UAE. However sales office does not import or hold supplies rather customers pay for import directly. In that case local office is an agent and fall under Article 33. The agent is not supplying but only earning commission and therefore needs to register for commission income only. The customer who is paying actual duties will be the importer in eyes of law. However where the agent stocks goods also on behalf of principal agent would then register as importer and account for VAT and custom duties accordingly.
Scenario 7. A foreign company sells goods to UAE where no person in UAE is obliged to pay the VAT. The situation may be on online purchase of taxable goods. In this case if the selling company does not export more than the registration thresholds to UAE , then there is no need to register, however if they export more than the thresholds then the selling company needs to register in UAE (Article 13(2) of Decree Law). On the other hand an importer who in online purchase case would be mostly unregistered person would be subject to VAT payment at point of import (Article 50(1) of Decree law). However he does not need to register unless he regularly imports in furtherance of business and not in personal capacity as consumer.
We note that the key criteria from FTA perspective is that whenever there are taxable supplies above the threshold inside UAE, there has to be a person responsible to pay VAT and account for it inside UAE.
The above does not purports to be a legal advice, and the writer can not be held liable in any manner.
Senior Manager - Indirect Tax | Deloitte & Touche ME
7 年Hello Aamer, Thank you for the informative write-up on VAT registration scenarios for foreign businesses with operations in UAE. With regards to Scenario 7, my understanding is that an export of goods by a non-resident entity to a non-taxable customer in a GCC Member State does not require the exporter to register for VAT purposes in that GCC Member State. This is because, as per Art. 11 of the GCC VAT FA, the place of supply of goods with transportation is where goods are located when transportation commences, which in this case is outside GCC. Thus, the place of supply for such export is outside the GCC and no VAT registration liability arises for the exporter in my opinion. Of course, import tax will apply to the imported goods at the Member State of first point of entry into the GCC, which will be an additional cost to the non-taxable customer importing the goods. In addition, my understanding is that the registration thresholds only apply to residents of the GCC, as per Art 50(1) and 50(3) of the GCC VAT FA. Your thoughts are appreciated.