VAT Treatment of UAE Holding Companies: Progress, Challenges, and Correct Application

– The UAE’s Federal Tax Authority has made progress in resolving VAT-related matters since its introduction in 2018.
– There is still confusion surrounding the VAT treatment of holding companies’ activities.
– Holding companies in the UAE can be categorized as ‘pure’ holding companies or those that provide support services.
– Pure holding companies can earn income exempt from VAT, zero-rated income, and out-of-scope income.
– Holding companies may face VAT registration obligations if they engage in purchases with overseas suppliers.
– The classification of each activity of the holding company is crucial in determining the correct VAT treatment.
– The VAT treatment becomes complex when a holding company pays salaries to employees who work for other subsidiaries.
– Cross charges from the holding company may be VAT-able at 5%, but considered a deemed supply if there is no recovery.
– Holding companies should carefully analyze expenses incurred on behalf of subsidiaries to determine if they qualify as reimbursement or disbursement.
– Errors can occur on the input side of transactions, such as missing the recovery of input VAT or erroneously recovering VAT on ineligible transactions.
– VAT issues in the UAE are still ongoing and may take time to settle due to the interplay with corporate tax.

Source: gulfnews.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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