VAT for Holding Companies and Corporate Groups

25 Dec, 2023
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Daisy Cureg

CPA, Financial Controller and Tax Advisor, Elnaggar & Partners


Corporate groups, regardless of their size, encompass diverse entities each serving a distinct purpose within the group structure. Typically, there is at least one holding company responsible for holding the shares of other entities within the group. Additionally, one or more "trading companies" may exist, engaging in specific trades aimed at revenue generation.

For non-profit or government-related groups, non-profit investment organisations (NPIOs) or equivalent regional entities may be present. Corporate groups often incorporate "support companies”, such as shared service centers, cost-sharing entities, and intellectual property holding/licensing companies. Partnerships and joint venture arrangements are also common within corporate group structures.

This network of interconnected parties, with varying degrees of connection, introduces diverse VAT considerations. These considerations span areas prone to errors, cash flow implications, actual VAT costs, and opportunities for optimisation. Each situation necessitates a case-by-case assessment, considering contractual agreements, commercial realities, and local VAT legislation.

This Practice Note specifically addresses the fundamental VAT considerations applicable to holding companies and corporate groups established in the UAE, focusing on the UAE VAT perspective. Further examination is warranted for corporate groups operating across international borders.


  • Authority: Federal Tax Authority.
  • Business: Any activity conducted regularly, or on an ongoing basis and independently by any person, in any location, such as industrial, commercial, agricultural, professional, service or excavation activities or anything related to the use of tangible or intangible property.
  • Charities: Societies and associations of public welfare not aiming to make a profit that are listed within a Cabinet Decision issued at the suggestion of the Minister.
  • Consideration: All that is received or expected to be received for the supply of goods or services, whether in money or other acceptable forms of payment.
  • Deemed supply: Anything considered as a supply and treated as a taxable supply according to the instances stipulated in Federal Decree-Law No. 8/2017 On Value Added Tax.
  • Exempt supply: A supply of goods or services for consideration while conducting business in the state, where no tax is due and no input tax may be recovered except according to the provisions of Federal Decree-Law No. 8/2017.
  • Fixed establishment: Any fixed place of business, other than the place of establishment, in which the person conducts their business regularly or permanently and where sufficient human and technology resources exist to enable the person to supply or acquire goods or services, including the person's branches.
  • Goods: Physical property that can be supplied including but not limited to real estate, water, and all forms of energy as specified in Federal Decree-Law No. 8/2017.
  • Government entities: Federal and local ministries, government departments, government agencies, authorities and public institutions in the state.
  • Input tax: Tax paid by a person or due from them when goods or services are supplied to them, or when conducting an import.
  • Person: A natural or legal person.
  • Place of establishment: The place where a business is legally established in a country pursuant to the decision of its establishment, in which significant management decisions are taken or central management functions are conducted.
  • Place of residence: The place where a person has a place of establishment or a fixed establishment, in accordance with the provisions of Federal Decree-Law No. 8/2017.
  • NPIO: Non-profit investment organisation.
  • Services: Anything that can be supplied other than goods.
  • Tax: Value Added Tax (VAT).
  • Taxable person: Any person registered or obliged to register for tax purposes under Federal Decree-Law No. 8/2017.
  • Taxable supply: A supply of goods or services for a consideration by a person conducting business in the state and does not include exempt supplies.
  • Tax group: Two or more persons registered with the Authority for tax purposes as a single taxable person in accordance with the provisions of Federal Decree-Law No. 8/2017.
  • Tax invoice: A written or electronic document in which the occurrence of a taxable supply is recorded with details pertaining to it.
  • FTA: Federal Tax Authority.
  • VAT: Value Added Tax.
  • UAE: United Arab Emirates.


Practical Guidance

Holding companies

Passive holding company

At its core, a passive holding company primarily exists to hold shares in other corporate entities. This act of "holding shares" is generally not considered a taxable supply for VAT purposes, as it does not entail the exchange of goods or services for consideration. Consequently, if such a holding company is not engaged in any other activities, it is improbable that it would need to register for VAT, as it is not deemed to be "in business" or conducting an "economic activity" for VAT purposes.

Without VAT registration, the costs incurred by this passive holding company related to its shareholding activities would be nonrecoverable from tax authorities. However, given the absence of active trading, it is unlikely that such a passive holding company would accumulate significant costs beyond its annual audit fees or initial legal setup expenses.

Active holding company

A holding company might be classified as "active" for various reasons. One scenario involves the company engaging in the trade of buying and selling shares in other companies, where its holding of shares is specifically aimed at future sales for profit generation. This "trading in shares" activity qualifies as an exempt activity for UAE VAT purposes, as outlined in article 46 of Federal Decree-Law No. 8/2017 and article 42 of Cabinet Decision No. 52/2017 on the Implementing Regulation of Federal Decree-Law No 8/2017 on the Value Added Tax. Consequently, such activities are not subject to VAT. However, any VAT incurred on costs directly associated with exempt activities cannot be deducted by the company, as these costs do not meet the criteria outlined in article 54 of Federal Decree-Law No. 8/2017.

Alternatively, the company may hold shares in its capacity as the holding company within a corporate group and may undertake additional activities beyond its passive holding of shares. These activities may encompass:

  • Managing the central operations of the group, where key decisions affecting the entire group, such as activities, branding, or pricing, are made.
  • Serving as the primary hub for the group's main IT, finance, or HR functions.
  • Maintaining legal ownership of real estate utilised by the group.
  • Conducting independent trading activities apart from other group entities.
  • Securing necessary group finance, licenses, and approvals.

Considering that VAT functions as a transaction tax, it is necessary to evaluate each specific undertaking by the holding company to determine its classification as a supply for VAT purposes, signifying a provision of goods or services in exchange for consideration.

When determining whether an activity carried out by the holding company qualifies as a supply of goods or services, attention should be directed towards whether other group members directly benefit from the activity, similarly to the benefit derived if the activity were outsourced to an independent third party. Additionally, the definitions of "supply of goods" and "supply of services" outlined in articles 5-6 of Federal Decree-Law No. 8/2017 and its amendments should be duly considered.

Upon establishing that a supply of goods (e.g., asset supply) or services (e.g., management services) is taking place, it becomes crucial to identify any consideration directly associated with these supplies. This consideration may manifest as cash or credit recorded in financial statements, or it could be non-monetary, such as in-kind consideration, like a barter transaction. Nonmonetary consideration should be appraised at market value according to article 34 of Federal Decree-Law No. 8/2017 and its amendments. If any form of consideration is paid for or due directly for the goods or services supplied by the holding company, VAT must be reported at the applicable rate.

An added layer of complexity emerges when the consideration paid by a related entity to the holding company is perceived as below market value. In such instances, the holding company might be obligated to assess the fair open market value of the supplied goods or services and account for VAT at the relevant rate based on this value, irrespective of the actual consideration. This regulation applies in the UAE when the consideration is below market value, the supply is taxable, and the recipient's input VAT deduction entitlement is not fully realised (e.g., due to exempt or non-business activities), as stipulated in article 36 of Federal Decree-Law No. 8/2017.

For UAE VAT purposes, a "related party" generally refers to two or more persons linked at an economic, financial, or regulatory level, where one of these persons can exert control (50% or more) over the others, either legally or through shares or voting rights.

The "market value" for UAE VAT purposes represents the monetary consideration that a supply would typically command under similar circumstances in the UAE, involving a transaction freely conducted between unrelated parties on that specific date. Additional methodologies for determining market value are outlined in article 25 of Cabinet Decision No. 52/2017.

Essentially, this provision serves as an anti-avoidance measure within the UAE VAT framework to prevent the setting of a nominal value for a supply between related parties, especially when the recipient cannot fully recover, thereby minimising VAT costs. The outcome of this provision ensures that the Federal Tax Authority (FTA) receives an accurate amount of VAT based on the value added throughout the supply, reflecting the true end consumption of the goods or services. It is crucial to note that the application of the "market value" principle is contingent on the parties involved being related, emphasising the importance of the definition of "related party" in this context.

In situations where no consideration is payable by the entity receiving goods or services from a holding company, it becomes necessary to consider the deeming provisions outlined in articles 11, 12, 26, and 37 of Federal Decree-Law No. 8/2017 to determine their applicability. The activation of these deeming provisions would result in a deemed consideration (i.e., cost) for the supply, obliging the holding company to account for VAT at the relevant rate. This introduces an actual VAT cost for the holding company unless the transaction undergoes restructuring and/or refinancing within the group.

Deduction of VAT

Similar to other entities subject to taxation, an actively operating holding company must evaluate its eligibility for VAT deduction on expenses by considering their direct association with taxable, exempt, or non-business/non-economic activities.

All VAT incurred on costs directly linked to a taxable supply made by a holding company to a related corporate group entity, regardless of the application of market value or deeming provisions, is fully deductible. For instance, costs related to centralised functions like IT, finance, or HR billed periodically to affiliated corporate group companies fall under this category. The same deduction principle applies to trade supplies made by the holding company to third-party customers, aligning with
the provisions outlined in article 54 of Federal Decree-Law No. 8/2017.

Conversely, any VAT on costs directly tied to an exempt supply by the holding company to a related corporate group entity or a third-party customer should be entirely restricted from deduction. For example, costs associated with providing loans or finance to corporate group companies fall into this category.

In cases where an active holding company incurs general overheads not directly attributable to taxable, exempt, or nonbusiness activities, a fair and reasonable portion of such costs eligible for deduction should be determined using an appropriate apportionment methodology. This annual apportionment review, as outlined in article 55 of Cabinet Decision No. 52/2017, ensures a retrospective assessment of the chosen methodology against actual activities, with adjustments made for any disparities. Detailed guidance on this matter can be found in the FTA: Taxable Person Guide for Value Added Tax and the FTA Input Tax Apportionment: Special Methods VAT Guide - VATGIT1.

Despite these deduction rules applying universally to all taxable entities, holding companies introduce an additional layer of complexity due to their status. Even if actively engaged in business activities and VAT-applicable supplies, holding companies that retain shares in related entities are at risk of having a portion of their costs associated with the non-business activity of shareholding, leading to a restricted deduction entitlement. The lack of guidance from UAE tax authorities on this issue introduces uncertainty and risk for holding companies.

Furthermore, scenarios where a holding company passively holds shares in some subsidiaries while actively managing others add yet another layer of complexity to determining deduction entitlement.

Lastly, holding companies coordinating the supply of goods or services for their group companies should distinguish between disbursements and reimbursements for VAT purposes, as per the FTA VAT Public Clarification Disbursements & Reimbursements: VATP013. Costs incurred by the holding company in its name to support onward supplies to related group companies should be deducted as reimbursements, while costs of a related company for which the holding company acts as a "paymaster" and recharges should be treated as disbursements. Ensuring that invoices for reimbursements and disbursements are received in the correct entity name helps prevent any "trapped VAT" in the supply chain. The difference between reimbursements (recharge) and disbursements is significant from the VAT point of view as reimbursements are subject to VAT while disbursements are outside the scope of VAT.

If one carefully analyses activities carried out by pure holding companies, they earn income classifiable in all the possible categories of tax treatment, which includes:

  • The income exempt from VAT that includes capital gains on sale of shares (in UAE) and interest earned on loans to subsidiaries/third parties.
  • The zero-rated income earned from gains from sale of shares to an identified recipient (outside UAE).
  • The out-of-scope income earned as dividends.

Receiving dividends

If a holding company merely receives dividend income, then it cannot register for VAT because it is engaged exclusively in a non-business investment activity. It will not be eligible to recover any input tax on costs.

In receipt of supplies

The holding company must be the recipient of supplies that it is looking to recover input VAT on, under general input tax recovery principles.

VAT registration in relation to business activities

If a holding company engages in economic activities and either makes or plans to make taxable supplies, it is eligible to register for VAT. The term "undertaking an economic activity" refers to the conduct of a business.

Corporate group members

Given the diverse corporate structures that can exist within corporate groups, it is imperative for each entity, whether a company, partnership, or joint venture, to thoroughly assess its role, activities, costs, and associated VAT obligations. Typically, entities within a corporate group are obligated to levy VAT, issue tax invoices, when necessary, for supplies to other corporate group members, and/or their holding company. However, entities such as charities, government entities, and/or joint ventures may not be subject to full reporting requirements.

Several VAT implications are common across entities within the group, including:

  • Market value application for supplies to related parties: Similar VAT consequences may arise concerning the application of market value for supplies to related parties.
  • Deduction entitlement with shareholding: Entities holding shares in other group entities face similar considerations regarding their deduction entitlement.
  • Deeming provisions for free goods or services: Deeming provisions come into play when goods or services are provided to other group members without charge.
  • Disbursements and reimbursements: The treatment of disbursements and reimbursements presents challenges and requires careful consideration.

These aspects of VAT law are known for being intricate, and businesses often make recurring errors, necessitating voluntary disclosure. Tax authorities routinely scrutinise these areas during tax audit procedures. Consistent application of incorrect treatments or deduction entitlements can lead to the accumulation of VAT liabilities and penalties for the entire group. Despite potential overall VAT neutrality for the FTA when evaluating the group, tax authorities typically assess each taxable person separately, even within the same corporate group.

Therefore, it is highly advisable to proactively identify these matters and incorporate them into the group's overall VAT governance structure. This approach ensures a consistent methodology across the group, establishes a clear audit trail of the group's VAT treatment, and implements internal procedures to maintain adequate controls for these complex VAT considerations.

VAT grouping

In general, opting for and implementing a VAT group for all or select members within a corporate group, including the holding company, proves to be an effective strategy in mitigating and reducing the risks associated with errors, cash flow constraints, and actual VAT costs stemming from the VAT concepts mentioned earlier.

Utilising a VAT group allows corporate group members to disregard any transactions among themselves for VAT purposes, as per article 12 of Federal Decree-Law No. 8/2017. This means that there is no obligation to charge VAT, issue tax invoices, or apply market value or deeming provisions.

However, it is important to note that a VAT group entails joint and several liability for all members concerning VAT obligations and liabilities. The process of applying for and securing a VAT group from the relevant tax authorities depends on whether certain criteria are met by all entities and if the application aligns with the efficient collection of the group's tax liabilities, avoiding any intention of tax evasion.

The criteria for VAT grouping in the UAE, outlined in article 10 of Federal Decree-Law No. 8/2017, can be summarised as follows:

  • Each entity must be in business for VAT purposes.
  • Each entity must be a legal person.
  • Each entity must be established in the UAE or, at a minimum, have a fixed establishment in the UAE (e.g., a branch).
  • Entities must be related parties, as per article 9 of Federal Decree-Law No. 8/2017.
  • Entities must be linked by economic, financial, and regulatory practices in business.
  • All entities must either meet the criteria of a specified government entity or charity, or none should meet these criteria.

It is worth noting that certain entities, such as private individuals, non-incorporated partnerships, and non-resident entities without a physical presence in the UAE, are ineligible for VAT group membership. While joint ventures are not explicitly addressed in the FTA's guidance, the likelihood of their eligibility seems low, given that joint ventures are not typically established as separate legal entities.

The distinction is made that a passive holding company without economic activity for VAT purposes would be excluded from a VAT group, while an active holding company engaged in economic activities would be eligible.

Interestingly, even a fully exempt business might qualify for VAT group membership if it undertakes economic activity, provided that the group's overall activities and financial metrics surpass the mandatory or voluntary registration thresholds.

Meeting the criteria does not guarantee approval for VAT grouping. The FTA holds discretion, allowing it to decline the application entirely, accept only specific members, or alter the group status later. For more details, the FTA Tax Groups - VAT Guide - VATGGR101 provides additional information.

Additionally, securing agreement from all corporate group members for VAT grouping may depend on external investor involvement. For instance, if one corporate group member is 40% owned by an independent investor, that investor may be hesitant to accept joint and several liability for VAT with tax authorities for all other group members.

Deduction of VAT

While the implementation of VAT grouping provisions generally alleviates the administrative burden within a corporate group, enhances cash flow efficiency, and, in specific circumstances, diminishes real VAT costs, challenges arise, particularly when the group is involved in exempt activities, inter-group transactions, and holding company functions.

As previously highlighted, each taxable entity is obliged to evaluate how its costs have been utilised to ascertain its eligibility to deduct any VAT incurred on such expenses. This evaluation typically involves a legal entity conducting a direct attribution exercise between its taxable and, if applicable, exempt activities. It involves restricting any VAT not linked to business or economic activities and employing a suitable apportionment mechanism for general overheads.

In the context of a VAT group, all group members are treated as a singular taxable entity. Consequently, inter-group transactions previously categorised as taxable or exempt are now regarded as outside the VAT scope. They are treated akin to internal departmental recharges within a single legal entity. Consequently, the direct attribution and apportionment exercise becomes significantly more intricate. Often, a VAT group member incurring VAT from an external third party must determine whether these costs can be directly attributed to a taxable or exempt supply made by the entire group to an external customer to accurately assess the overall deduction entitlement of the group. This can pose considerable challenges, and at times, prove impossible, especially when VAT group members lack centralised IT systems or have independent management structures that
do not closely coordinate daily activities.

Moreover, VAT grouping often transforms certain costs previously attributable to taxable or exempt supplies into general overheads for the entire group. Depending on the deduction entitlement of the entity incurring the cost (based on its taxable and exempt activities and apportionment methodology) versus the overall deduction entitlement of the group, this may result in either lower or higher deduction entitlement on such costs. Analysing this in advance of forming a VAT group can be a complex and time-consuming task, adding an additional layer to the VAT compliance process each period. Annual apportionment reviews remain mandatory for the entire group. In cases where the group has distinct business areas, it may necessitate more than one apportionment methodology, especially if it is agreed with the FTA that a single method does not accurately reflect cost drivers across all divisions.

Non-group members

If certain members of a corporate group are included in a VAT group while others are excluded (either due to FTA exclusion or their shareholding structure), the group must establish new policies, procedures, and controls. This is necessary to ensure that VAT group members and non-VAT group members are distinctly recognised throughout the business. Different assessments and correct treatments for supplies and VAT on costs should be applied to each category.

It is not uncommon for a corporate group to have a restricted VAT group, leading to errors in VAT treatments or intercompany billing by staff. These errors often result from a lack of communication, training, and established policies to guarantee the consistent and accurate application of VAT rules.

Corporate group restructuring

If a corporate group undergoes any form of restructuring (whether through the establishment of a new entity or branch, the sale of existing group entities, a merger with a third party, or the transfer of a business from another group into a current group entity), it is essential to assess the post-restructuring VAT status of the group. This evaluation ensures a comprehensive re-assessment of all relevant VAT rules and the implementation of any necessary changes by the business. Examples include the re-evaluation of the group apportionment rate, the reallocation of costs directly to taxable/exempt activities, the application of market value and deeming provisions to related entities not within the VAT group, or the deduction entitlement of any newly introduced holding company structures.

While many businesses evaluate the VAT consequences of the actual restructuring exercise itself, the post-restructuring VAT landscape for the corporate group is often overlooked. This oversight introduces a new level of risk for errors and the potential application of penalties.


Evaluating VAT obligations for holding companies in the UAE is complex and requires careful consideration of risks and optimisation opportunities. It is crucial to conduct due diligence on the company structure, potential errors in transactions, and compliance with VAT principles. While VAT grouping is an option, its implications on day-to-day operations must be thoroughly assessed. Corporate groups should be aware of the UAE's strict penalty regimes and regularly review their VAT analysis to minimise errors and penalties. Businesses are advised to adopt a cautious approach, considering potential changes in VAT laws, and seek clarification from tax authorities.



Related Content


  • Common VAT Agreement of the States of the Gulf Cooperation Council (GCC) (the GCC VAT Agreement)


  • Federal Decree-Law No. 8/2017 On Value Added Tax
  • Cabinet Decision No. 52/2017 On the Implementing Regulation of Federal Decree-Law No. 8/2017 on the Value Added Tax


  • FTA Tax Groups - VAT Guide - VATGGR101
  • FTA: Taxable Person Guide for Value Added Tax
  • FTA Input Tax Apportionment: Special Methods VAT Guide - VATGIT1
  • FTA VAT Public Clarification Disbursements & Reimbursements: VATP013


Daisy Cureg

Financial Controller and Tax Advisor

Elnaggar & Partners



Elleonor Grace E. Apostol

General Accountant

Elnaggar & Partners

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