- The UAE Federal Tax Authority has been working to resolve VAT-related matters since its implementation in January 2018.
- One issue that has persisted is the correct VAT treatment of holding companies’ activities.
- Even after five years since the introduction of VAT in the region, prominent organizations still struggle to apply the correct treatment.
- Holding companies in the UAE typically hold shares in related entities and earn income through dividends, capital gains, and interest.
- However, there is a lack of understanding regarding the correct VAT treatment when there is no taxable activity.
- Pure holding companies earn income that falls under different categories of tax treatment, including exempt income, zero-rated income, and out-of-scope income.
- The correct classification of each activity of the holding company is crucial in determining the correct VAT treatment.
- Issues arise when holding companies engage in activities apart from purely holding shares, and when they pay salaries to employees who work for other subsidiaries.
- Holding companies should identify such transactions and apply the correct VAT treatment.
Source Gulfnews.com
