VAT Transactions between UAE branch and foreign Head Office

Basis of opinion

Article 1 of the VAT Decree-Law defines a person as a natural or legal person

Applicability

Applicable to the transactions entered between the UAE branch and the foreign head office

Practical example:

ABC LTD an entity located in the United Kingdom (UK) incorporated a foreign branch in UAE with the legal type “branch of a foreign entity” and it is also registered with FTA. The following transactions are happened between head office and branch:

1. Head office charged USD 100,000 from branch as a management fee
2. The foreign branch received an interest income of USD 50,000 against a deposit made with head office

The foreign branch is using one of the apportionment methods approved by the authority to apportion the residual input tax.

• Whether the foreign branch is required to disclose the above two transactions in the VAT return?
• Is there any impact for these transactions in input tax apportionment method used by the branch?

Solution:

Reporting requirement

For a supply to take place for VAT purposes, the transactions must generally take place between two separate persons. However, a branch is considered as an extension of the head office/parent company and hence is not to be treated as a separate company.

Therefore, the transaction between foreign branch in UAE and head office in UK will be outside the scope of UAE VAT and the branch is not required to report such transactions in the VAT Return.

Input tax apportionment

Since these transactions are outside the scope of UAE VAT, the branch is not required to include these transactions in the input tax apportionment method calculation. i.e., above transactions shall not impact the percentage of recovery of residual input tax.

Conclusion

Transaction between the UAE branch and its head office located outside UAE are out of scope for VAT purpose. Also, such transactions must not be considered in calculation method for apportionment of residual input tax.

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