VAT impact on Family Offices in the Middle East Region
As perhaps the densest center of wealth worldwide, the Middle East is home to an increasingly larger number of family offices. Irrespective of geography, the motivations behind setting up a family office are often similar: preserving family wealth, ensuring inter-generational transfer, mitigating family conflicts, consolidating assets, dealing with a sudden liquidity influx, increasing wealth management efficiency.
When it comes to family office/businesses, each one is a unique organization with its own vision or mission and family structure.
Often, family members own office buildings or commercial properties used by the family / business. The lines between individual and corporate property ownership and use can therefore be blurred.
With VAT being introduced in the Region under the GCC VAT Framework Agreement, the lack of clear division between family and business should be carefully considered.
E.g. in case of property ownership, the family member(s) who own(s) the property will have to register for VAT, issue invoices and account for VAT. Further, there needs to be a clear distinction between expenses related to business and that of the family. This differentiation can trigger issues where bank accounts mixing family and business are used. The lack of supporting documentation and inability to directly trace expenses to business operations poses major roadblocks to claiming VAT credits due.
It is vital for family businesses operating in the GCC to increase awareness about VAT across the entire organization and educate all employees about the implications of VAT and the potential penalties in the case of non-compliance.
The VAT treatment of the family office / business together with the VAT exposure – which will depend on the type of transactions entered into and the duties and responsibilities to follow – need to be clearly understood.
Reviewing the legal structures and considering efficient tools to streamline the family wealth with business investments are important prerequisites for a successful VAT implementation. Ignoring such measures may result in significant costs and inefficiencies.
For more information on structuring of family office business and key considerations to be kept in mind while setting up a family office, please refer to M-HQ’s fact-sheet.
Key Steps to ensure VAT optimization for family offices
- Operations: Need to conduct comprehensive VAT impact assessment with respect to operations, goods/service flows of the family business: identifying business and family related expenses, and segregating.
- Corporate v. Family ownership: Review of the family and business ownership structures and consider if restructuring is required for segregating private wealth from family business.
- Family governance: Review of the current state of the development of the family governance from the perspective of its impact on the VAT. E.g a code of conduct may include certain provisions, which may forbid family members to use operating businesses for their lifestyle expenses.
- Finance/ Compliance: Defining the scope of the required VAT, related compliance and set-up the organizational structure and resources (e.g. family office etc.).
- IT Readiness: Identifying potential IT system gaps for VAT implementation purposes.
How can we help
Rethink as an entity provides VAT advisory, optimization, registration, implementation, compliance and training services in the UAE and the GCC. Before you reach your VAT filing due date, contact us for a VAT Health Check and VAT filing assistance.
Our team is here to guide you through the VAT law and regulations and ensure full compliance with the law.
Our team of senior qualified tax advisors, finance experts, and tax accountants will ensure timely and cost-effective VAT services for SMEs.
Based on our local and international experience we understand that VAT is a complex tax and will certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.
Who we are
Re/think is a boutique accounting, audit, advisory, regulatory compliance and tax advisory firm with offices in Dubai, Abu Dhabi and Bahrain, focused on providing businesses of varying sizes with timely, proactive, and customized business solutions from start-up and early development to the latest stages of a business lifecycle.
For further information and assistance with VAT, Customs or Excise advisory, structuring and registrations in Bahrain, UAE or KSA, please contact firstname.lastname@example.org.