My company is newly established and I am anticipating orders above Dh200,000. I recently received a purchase order from a customer for around Dh240,000 and immediately applied for voluntary registration on the Federal Tax Authority site, however I have still not received the tax registration number. If I wait for the TRN, I will lose small orders from other customers. So, can I still raise customer invoices? Do I need to mention VAT on the invoice or can I raise an invoice without it? AB, Dubai
Once you have submitted your voluntary tax application on the FTA’s online portal you have to wait until they have reviewed the uploaded information and the registration is accepted before you can submit invoices with VAT included. Until that point, raise invoices that do not mention the words VAT or TAX and do not add VAT to the amount invoiced. Including VAT in the invoice is against the Decree Law and would result in fines and penalties if later identified during an FTA audit.
Between applying for your VAT registration and receiving your TRN, you should not lose customers, you just have to invoice them without VAT. However, as you don’t yet know the date you will received your TRN and the effective date of registration the FTA will give you, I suggest advising customers in advance that your invoice may or may not include VAT. If your customers are VAT registered, they should be indifferent to this as they can reclaim any VAT charged. Non-VAT registered customers will be most affected as they may get an invoice without VAT or pay 5 per cent more if you need to invoice them with the tax applied. What you want to avoid is raising invoices without VAT and the FTA backdating your registration to the start of the month. If that happens, you would have to account for the tax on the revenues already invoiced even though you have not charged it to your customers.
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I have a query about foreign companies and group companies. ABC is a branch of a foreign entity LMO (who is the parent), which is based in Singapore. ABC has a trade licence registered in the mainland of Abu Dhabi, which is registered with the FTA. XYZ is a sister company of ABC, which is also a foreign branch of the same parent LMO. XYZ has a trade licence registered with the Abu Dhabi Free zone, Abu Dhabi Global Market. ADGM is not in the FTA-specified list of non-taxable Free zones. Can XYZ be registered for VAT with the FTA as a group company of ABC, since its shares a common board of directors?
Also XYZ has been incorporated for over a year, but no revenues have yet been recorded as they are still formulating how the business should be bifurcated. Expenses are already recognised in their accounts. Currently the taxable expenses are below the voluntary registration threshold of Dh187,000. XYZ is not sure when the expenses will cross this registering threshold, as the business model is still being evaluated. Can XYZ claim back VAT on its expenses at this stage? NF, Dubai
Two UAE entities may be registered as part of a VAT group where the parent company is an overseas entity not part of the VAT group. Article 14 of the decree law sets out where companies may form a tax group and all three of the following conditions must be met. Firstly all entities must have a place of establishment or fixed establishment in the UAE. Secondly they companies must be considered to be related parties. Finally, one or more persons conducting business in the group controls the others.
Article 9 of the Executive Regulations to the Decree Law sets out the detailed definition of related parties. It appears from your question that ABC and XYZ would probably fall into the definition of related parties with common control and therefore could apply to form a VAT group.
Once one company has been registered, you can apply for others to join a VAT group even if all entities do not individually meet the registration threshold of companies not in a VAT group. The taxable turnover and costs of the group are assessed as a whole, not individually.
XYZ can only claim back VAT it pays on its expenses at such a time that it becomes part of a VAT group registered with the FTA. Just because it meets the conditions of a VAT group you cannot claim back VAT until the group has been properly established with the FTA.
Lisa Martin, a chartered accountant with more than 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to pf@thenational.ae
