VAT Transactions between UAE branch and foreign Head Office
Sreekanth Karicheri, Tax Analyst
Phone:- +971 4 327 7775
Mobile:- +971 50 677 5860
WhatsApp:- +971 56 219 1607
Basis of opinion
Article 1 of the VAT Decree-Law defines a person as a natural or legal person
Applicable to the transactions entered between the UAE branch and the foreign head office
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:
- Head office charged USD 100,000 from branch as a management fee
- 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?
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.
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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