Your company left a VAT group in September after a restructuring, but stayed VAT-registered on its own. In October, a customer returns goods from a sale the group reported back in July. You raise a credit note. Whose VAT return does that adjustment belong in - the old group's, or yours? Until last month, the answer was murky. Now the Federal Tax Authority has spelled it out.
TL;DR: From 1 August 2026, FTA Directive No. 2 of 2026 confirms that if you leave a UAE VAT group but stay VAT-registered, any later adjustment to a supply or expense from the grouped period goes in your own VAT return, not the group's. Keep records linking it to the original filing.
What Changed on 1 August 2026?
The FTA issued a Directive on Tax Transactions No. 2 of 2026 on 8 July 2026 (published 10 July), and it took effect on 1 August 2026. It closes a gap that used to force finance teams to guess where a post-exit VAT adjustment should sit.
The rule is short. When a member leaves a VAT group but keeps its own VAT registration, and a supply or expense from the grouped period later needs adjusting, that adjustment goes in the former member's own return. It was one of five binding directives the FTA published together, alongside guidance on digital currency payments covered in our post on VAT on crypto payments (KPMG, 2026). Because these directives are binding on both the FTA and the taxpayer, treating them as optional guidance is a mistake.
What Is a UAE VAT Group, and What Happens When You Leave One?
A VAT group lets two or more related businesses under common control register as a single taxable person under Article 14 of the VAT Decree-Law. They share one Tax Registration Number, file one return through a representative member, and supplies between them fall outside VAT (FTA VAT Decree-Law, 2017).
When a company leaves that group, its individual tax position separates from the rest. If it still makes taxable supplies above the mandatory threshold of AED 375,000, it registers or stays registered in its own right. What was less clear was how to treat the tail of transactions the group had already reported: the credit notes, rebates, and bad debts that surface months after the sale. In our experience, this is exactly where group finance teams lose time re-filing under the wrong TRN.
Where Do You Report Adjustments to Pre-Exit Supplies?
In your own return. The directive states that a former group member must report the adjustment in its own VAT return when the adjustment relates to a taxable supply made, or a taxable expense incurred, before the person left the group (VATupdate, 2026).
This only applies if you remain VAT-registered after the exit. A former member that deregisters entirely handles its closing position through the final return instead. The point of the directive is continuity: the transaction was originally the group's, but the responsibility for cleaning it up follows the business that actually made the supply. What we see most often is a customer credit note issued weeks after a member has already separated, and the old representative member no longer wants to touch it.
The Two Adjustments the Directive Covers
Two categories. On the output side, it covers reductions in the value of a taxable supply the group previously declared - price adjustments, partial cancellations, qualifying credit notes, and bad debt relief. On the input side, it covers reductions in a taxable expense for which the group recovered input tax (saifaudit, 2026).
A short example. Say the group reported a standard-rated sale of AED 100,000 with AED 5,000 of output VAT in July. Company A then leaves the group on 31 August. In October, A agrees a 10% rebate with the customer, cutting the supply by AED 10,000 and the VAT by AED 500. Under the directive, A reports that AED 500 reduction in its own return. The directive does not extend to errors that need a formal voluntary disclosure, so a genuine mistake in the original filing still follows the voluntary disclosure route, not this one.
The Records You Need to Keep
You need enough to prove the adjustment ties back to a transaction the group originally reported. That means the original invoice, the credit note or adjustment document, evidence that the supply or expense was declared in the group's return, your VAT workings, and the date you left the group.
The FTA has been consistent on this across its recent output: the burden is on the taxpayer to evidence the link. One question clients always ask is how far back the FTA can look, and the answer runs to the standard record-retention period, so exit documentation should live in the same file as the group's historic returns. Getting the mechanics of an adjustment wrong is a common trigger for penalties, which we cover in VAT return errors and the penalties they trigger.
Does Leaving the Group End Your Liability for That Period?
No. Members of a VAT group are jointly and severally liable for the group's VAT debts, and that liability for the period you were a member does not vanish when you leave (FTA VAT Decree-Law, 2017). If the FTA later finds an underpayment for a period you were grouped, you can still be pursued for it.
This is worth flagging before any restructuring, disposal, or group reorganisation. The exit changes where future adjustments are reported, but it does not draw a clean line under the past. A VAT group and a corporate tax group are separate elections with separate rules, a distinction we set out in our guide to UAE corporate tax groups, and leaving one does not affect the other.
Frequently Asked Questions
When does FTA Directive No. 2 of 2026 take effect?
It took effect on 1 August 2026. It was issued on 8 July 2026 and published on 10 July. Adjustments to pre-exit supplies or expenses made from the effective date onward should follow the directive's approach.
Does this apply if I deregister for VAT when I leave the group?
No. The directive applies to a former member that stays VAT-registered in its own right. If you deregister entirely, you account for your closing position through the final VAT return, which treats business assets still held as a deemed supply.
Who reports a credit note for a sale the group made before I left?
You do, in your own return, provided you remain registered. The original sale sat in the group's return, but the later reduction is reported by the business that made the supply, with records linking it back to the group filing.
What is the VAT registration threshold if my business stands alone after the exit?
Mandatory registration applies once taxable supplies pass AED 375,000 over the preceding 12 months. The voluntary threshold is AED 187,500. If your standalone turnover sits below AED 187,500 and you stop making taxable supplies, you must apply to deregister within 20 business days.
Does the directive cover mistakes in the group's original returns?
No. Genuine errors in a prior filing still go through the voluntary disclosure process. The directive deals with legitimate later adjustments, such as credit notes and bad debt relief, not corrections of errors.
Planning a restructuring or thinking about splitting a company out of your VAT group? Get in touch - we can map where your VAT adjustments will land after the exit and make sure your records hold up if the FTA asks. For the wider picture, our VAT services cover group registration, returns, and compliance across the UAE.