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VAT FOR
HOLDING
COMPANIES
Holding company transactions have always been a be regarded as carrying on an economic activity.”
matter of complexity and one of the most litigated
areas in VAT jurisdictions worldwide. Thereby, KSA has confirmed in its guideline that
Passive holding company is not regarded as
There can be two categories of holding companies- carrying on an economic activity for VAT purposes
and therefore cannot register for VAT or join a group
1. Passive/Pure holding companies – where the
main purpose is only to hold shares in other with other companies in the group.
companies. Passive holding company just Further, It has been clarified in KSA guideline that
receives dividend income and usually does not if Holding company provides management services
have any other source of income. to subsidiary companies, incurs centralized costs
2. Active/Mixed holding companies – these for the group and re-charge to group entities, it will
companies hold shares and also undertake be considered as carrying on economic activity for
other activities. For example, central VAT purposes. In this case, holding company (which
management of the group is with the holding is an active/mixed holding company) may register
company and it provides management services for VAT or form a tax group.
to the subsidiaries etc. “Economic activity” under KSA VAT is defined,
Reference from Kingdom of as below which is almost similar definition to
Saudi Arabia (“KSA”) “VAT “Business” as per UAE VAT law:
“An activity that is conducted in an on-going and
Guideline Economic activity” regular manner including commercial, industrial,
“A holding company that has an ownership stake agricultural or professional activities or Services or
and receives dividends will not be regarded as any use of material or immaterial property and any
carrying on an economic activity for VAT purposes. other similar activity.”
However, if the holding company has other sources Definition of “Business” (UAE VAT law):
of revenues or expenditures, it is probable that it will
The Institute of Chartered Accountants of India (Dubai) Chapter NPIO TAX JOURNAL 2020 49
