In the United Arab Emirates, the Value Added Tax (VAT) system has been effective since 2018. As with other jurisdictions, businesses in the UAE reach a particular revenue threshold are mandated to register for VAT. However, there are some circumstances where a company may choose to forgo registration. This is exactly why understanding VAT deregistration in the UAE is critical.
VAT deregistration is the official process for cancelling a company’s VAT registration with the Federal Tax Authority (FTA). Businesses that do not qualify to be registered under VAT or have ceased operations are legally obligated to deregister from VAT. Knowing the how and when to apply for VAT deregistration is essential in order to avoid noncompliance fines.
What Is VAT Deregistration?
VAT deregistration is the formal process of removing a business from the VAT system in the UAE. After a business has been deregistered, it will not be obliged to collect VAT on sales and submit VAT returns. Unlike other VAT processes, this one is distinct in essential in order to avoid noncompthat the business must take initiative to complete the steps, guided by conditions set by the FTA.
VAT deregistration can broadly be classified into two categories:
- Mandatory Deregistration—applicable in cases where a business no longer meets the VAT registration requirements.
- Voluntary Deregistration—applicable in specific situations such as a business’s taxable supplies declining beneath the voluntary threshold.
Eligibility Criteria for VAT Deregistration in the UAE
There are particular situations in which a business is deemed eligible or mandated for VAT deregistration. These circumstances include –
. Cessation of Activities : Registered businesses that have ceased making taxable supplies—and do not intend to operate in the future—are required to deregister for VAT. This situation mainly applies to businesses that have shut down or gone through some form of liquidation.
Revenue Reduction Below the Mandatory Threshold: There is a mandatory threshold of taxable supplies of AED 375,000, and a business is registered. If a registered business’s taxable supplies drop below this amount and is not likely to reach it within 30 days, then it must apply for VAT deregistration.
Revenue Reduction Below the Voluntary Threshold: Should a business voluntarily register (turnover between AED 187,500 and AED 375,000) and its taxable turnover be reduced to below the voluntary threshold of AED 187,500 in the preceding 12 months, it may apply for voluntary VAT deregistration—provided that the business was registered for at least 12 months.
When to Apply for VAT Deregistration
VAT deregistration applications should be submitted not later than 20 business days after meeting the criteria for deregistration. Fines may be imposed for failing to meet deadlines. It is crucial to manage and monitor business revenue and operations to ensure that the requirements are met, and applications are made when necessary.
Penalties for Failing to Deregister on Time
In the absence of applying for VAT deregistration within the designated period, punitive action such as financial penalties may be imposed by the FTA. Such penalties usually commence at AED 1,000 for the first month of the delay, escalating at a predefined rate for each subsequent month of delay up to a capped amount.
In addition, there is the risk that a business required to deregister but fails to do so may still be considered liable to submit VAT returns. In the absence of taxable transactions, this will lead to unnecessary administrative burdens on the business and may result in non-compliance penalties for other obligations.
Essential Documents for VAT Deregistration
In the case of UAE, the following documents and information are generally required for VAT deregistration:
- Active trade license (or evidence of license cancellation or business liquidation).
- A closing VAT return highlighting all relevant taxable supplies and purchases.
- Financial statements indicating active (or inactive) business operations.
- Corporate documents justifying the reason for voluntary deregistration.
- Documents proving all VAT liabilities have been reconciled.
- Contact information and Emirates ID of the signing representative.
All payments related to VAT returns must be processed prior to applying for deregistration. Any outstanding matters may lead to complications.
Steps for VAT Deregistration Application
Deregistration can be processed through the official portal of the FTA. Kindly follow the steps listed below:
FTA Portal Log In: Go to the FTA e-Services portal and log in using the registered account details.
Select ‘De-Register’: In the VAT section, click ‘De-Register’ next to your Tax Registration Number (TRN).
Complete the Application: Fill in all relevant fields such as reasons for deregistration, last period of VAT return, other pertinent information regarding the business, and submit the documents for verification.
Submit the Application: Review all provided information and check for accuracy against the form’s fields. After all fields are completed, submit the application. The FTA will acknowledge receipt, and the review will take approximately 20 business days.
Await FTA Approval: Upon completion of the review, the FTA might need to clarify certain documents. The TRN will be canceled post-approval, and the business will be marked as deregistered.
Post-Deregistration Obligations
VAT deregistration means businesses are not required to submit periodic VAT returns and are not expected to charge VAT on sales. However, there are some obligations that a business needs to fulfill:
- Record Maintenance: Businesses must retain all records relating to VAT for a minimum of five years after deregistration in the event of audits and inspections.
- Final VAT Liabilities: All pending VAT obligations needs to be paid immediately. In the event a business holds VAT credit, a request for a refund can be submitted.
- Deemed Supplies: A business that is deregistered may consider any remaining stock and assets as “deemed supplies” and thus subject to VAT. This must be settled in the final return.
Possible Effects of VAT Deregistration
Considerable caution should be taken concerning VAT deregistration,x as it affects business functions. For example, a business anticipating scale-up in the near term would be better off staying registered. Simplifying things by deregistering might complicate matters more down the line. In this scenario, though, one must also consider the need to avoid compliance gaps lest fines and disruptions arise.
Business deregistration decisions ought to stem from an in-depth assessment of operations, financing, and strategic foresight.
Closing Remarks
For businesses that cease operations or drop below the threshold of taxable revenue, VAT deregistration is an important administrative process in the UAE. Knowing the criteria for eligibility and the required documents helps ensure compliance during the processes. Businesses must also act within reasonable timeframes to avoid penalties and other legal ramifications.
VAT deregistration, whether voluntary or mandatory, should be precise in execution while the processes should be documented unequivocally. Companies that linger in doubt about their eligibility or the procedural steps might benefit from engaging VAT specialists who are well-versed with the UAE tax system.
Ultimately, VAT deregistration is more than just a routine regulatory procedure; it is a fundamental obligation that underscores a business’s commitment to compliance with regulations and fiscal responsibilities within the operating environment of the UAE.
