VAT Considerations on IPO Listing

The Initial Public Offering (IPO) landscape in the UAE is gaining significant momentum, attracting both government-owned enterprises and private homegrown companies eager to go public. Beyond increasing market capitalization, going public enables companies to drive expansion, product innovation, enter new markets, etc.

That said, IPO listing is a complex process that involves coordination with multiple stakeholders. Legal advisors ensure that the company complies with UAE regulations and international securities laws. Investment banks assist with the pricing, underwriting, and distribution of shares, while consultants conduct due diligence to understand the financial soundness of the company. In addition, various consultants may be involved in preparing governance frameworks, tax structuring, and addressing regulatory matters.

Given the scale and scope of activities leading up to an IPO, businesses incur significant costs. These include legal and consultancy fees, success fees to investment banks, due diligence services, marketing for investor roadshows, and regulatory filing charges. Naturally, these expenses raise an important question: Can businesses recover the VAT paid on these services under UAE VAT law?

Under UAE VAT Law, there is no explicit guidance regarding the VAT treatment of expenses in connection with an IPO. This has resulted in two schools of thought:

Input VAT is blocked due to the issuance of shares

One interpretation is that VAT recovery on IPO-related expenses is blocked because these costs are directly linked to the issuance of equity shares to the public. Under UAE VAT law, the issuance of shares is classified as a “financial service”, which is exempt from VAT. Since the IPO process involves an exempt supply (i.e., the issuance of shares), it is argued that the input VAT paid on legal, financial, and consultancy services for the IPO should be blocked.

Input VAT should be recoverable as overhead expenses?

On the other hand, another view could be that the expenses incurred during the IPO process are part of the company’s broader business operations and should be considered overheads. From this perspective, the IPO is a means to raise capital for business expansion, which ultimately supports taxable supplies. In this view, since the IPO enables the company to generate taxable income in the future, the VAT paid on related expenses should be recoverable.

Conclusion

These contrasting views place companies in a challenging position, as the decision to recover VAT on IPO-related costs or treat it as non-recoverable can significantly impact their financial outcomes. Given the potentially large sums involved in IPO listing, businesses must make informed decision based on careful analysis.?