A COMPREHENSIVE GUIDE TO VAT DEREGISTRATION IN THE UAE

Value Added Tax (VAT) is a pivotal aspect of modern taxation systems worldwide, serving as an indirect levy on goods and services. Embraced by numerous countries, including the United Arab Emirates (UAE), VAT operates as a multi-stage tax, impacting various production and distribution phases. It’s essential to comprehend the fundamentals of VAT deregistration, its mechanisms, and its impact on businesses and consumers alike.

Understanding VAT Deregistration in the UAE

Value Added Tax (VAT) deregistration in the United Arab Emirates (UAE) is a critical process that businesses need to navigate with precision. Whether due to business closure, turnover falling below the mandatory threshold, or other reasons, VAT deregistration demands careful attention to comply with UAE tax regulations.

Let’s delve into a comprehensive guide on VAT deregistration in the UAE.

1. Reasons for Deregistration

Threshold Volatility: VAT deregistration may arise if a business’s taxable supplies over 12 consecutive months fall below the mandatory threshold of AED 187,500.

Business Closure: Should a business cease its operations or transfer its business assets, deregistration becomes necessary.

Change in Business Structure: Certain changes like mergers, acquisitions, or alterations in the legal form of the business could trigger deregistration.

2. The Deregistration Process

Assessment of Eligibility: Assess whether your business meets the criteria for deregistration. Ensure your taxable turnover has consistently fallen below the threshold for the past 12 months.

Notification to FTA: Submit a VAT deregistration application to the Federal Tax Authority (FTA). This application must include the requisite details, such as the reason for deregistration and supporting documents.

Clearance of Obligations: Settle any outstanding VAT liabilities, including filing pending tax returns and payment of due taxes.

Asset Disposal or Redistribution: Properly manage any remaining stock or assets, considering VAT implications.

3. Necessary Documentation

When applying for deregistration, ensure the submission of the following documents:

• Business License
• Emirates ID and Passport copies of authorized signatories
• VAT Registration Certificate
• Financial Statements for the past 12 months (if applicable)
• Details of outstanding VAT payments (if any)

4. Timelines and Considerations

After submitting the deregistration application, the FTA assesses the request within a specified time frame. Maintaining compliance during this period is crucial until official deregistration confirmation is received.

5. Implications of Deregistration

Upon successful deregistration, inevitable consequences and benefits arise:

Input Tax Recovery: Businesses can claim input tax on remaining taxable supplies.

Record-Keeping: Maintain records for at least five years post-deregistration.

Obligation Termination: Cease charging VAT on supplies and file VAT returns once deregistered.

Application Submission and VAT Deregistration Certificate

Value Added Tax (VAT) deregistration involves applying to the Federal Tax Authority (FTA) and, upon approval, receiving a VAT Deregistration Certificate. Here’s an overview of the application submission and the subsequent issuance of the deregistration certificate:

Application Submission Process:

1. Eligibility Check: Ensure your business meets the criteria for deregistration. This could include factors like falling below the threshold for mandatory registration or ceasing business operations.
2. Document Preparation: Gather necessary documents such as the VAT Registration Certificate, Emirates ID and passport copies of authorized signatories, financial statements (if required), and other relevant records.
3. Completing the Application: Submit a VAT deregistration application to the FTA. The application typically includes reasons for deregistration and supporting documentation.
4. Clear Outstanding Obligations: Ensure all outstanding VAT payments or liabilities are settled before the deregistration application. This includes filing VAT returns and paying any pending dues.
5. Submission: Submit the deregistration application through the FTA’s online portal or designated communication channels per their guidelines. Ensure the accuracy and completeness of the information provided.

Receipt of VAT Deregistration Certificate:

Upon approval of the deregistration application by the FTA, the business should receive a VAT deregistration certificate.

1. Confirmation of Deregistration: Once the FTA reviews the application and approves the deregistration, they issue a VAT Deregistration Certificate. This confirms the successful completion of the deregistration process.
2. Certificate Issuance: The VAT Deregistration Certificate is official documentation that your business has been deregistered from VAT and is no longer liable to collect or pay VAT.
3. Record Keeping: Keep the VAT Deregistration Certificate and all related documents securely stored as part of your business records, as they might be needed for future audits or reference purposes.

Constantly monitor communications from the FTA after submission to track the progress of your application. If any follow-up actions or additional information are required, ensure prompt and accurate responses to expedite obtaining the VAT Deregistration Certificate.

When Do I Deregister for VAT?

Deregistering for Value Added Tax (VAT) is a crucial step for businesses, but knowing precisely when to initiate this process is essential to remaining compliant with tax regulations. Here are some scenarios that might prompt VAT deregistration:

1. Revenue Below Threshold: If your taxable turnover falls below the mandatory threshold of AED 187,500 over 12 consecutive months, you become eligible for deregistration. Regularly monitoring your turnover is important to determine if it remains under this threshold.
2. Business Closure or Change: Should you decide to cease operations or undergo significant structural changes, such as mergers, acquisitions, or changes in legal form, deregistration becomes necessary.
3. Relevant Circumstances: Any situation where your business activities no longer align with the criteria for VAT registration necessitates deregistration. For instance, consider deregistration if you transition from taxable to exempt supplies.
4. Temporary Nature of Business: If your business operates temporarily and doesn’t foresee reaching the threshold for taxable turnover within 12 months, deregistration might be appropriate.
5. Mandatory Deregistration: Businesses must comply promptly if the Federal Tax Authority (FTA) mandates deregistration due to non-compliance, failure to meet obligations, or other regulatory reasons.

To navigate these scenarios effectively, monitor your turnover regularly and stay informed about any changes in tax regulations or your business activities. It’s advisable to seek guidance from tax consultants or legal advisors to ensure accurate decision-making and adherence to the UAE’s VAT laws. Prompt and accurate deregistration helps avoid penalties and ensures compliance with tax obligations.

Time Limit for Submitting a VAT Deregistration Application

When considering VAT deregistration, adhering to specific timelines is crucial to ensuring compliance with the Federal Tax Authority (FTA) regulations. The submission of a VAT deregistration application should be undertaken promptly and within the stipulated time frames:

1. Threshold-Based Deregistration: If your taxable turnover falls below the mandatory threshold of AED 187,500 over 12 consecutive months, you become eligible for deregistration. In this case, businesses should apply for deregistration within 20 business days from the end of the 12 months during which the turnover fell below the threshold.
2. Immediate Deregistration: If certain events, such as business closure or significant structural changes, necessitate immediate deregistration, the application should be submitted within 20 business days from the event triggering the need for deregistration.
3. Voluntary Deregistration: If your business decides to deregister voluntarily due to a change in business activities or any other reason, the application must be submitted within 20 business days from the date of decision-making or a change in circumstances leading to the voluntary deregistration.

Adhering to these time frames is crucial to ensuring compliance and avoiding potential penalties or issues arising from delayed or non-compliant deregistration. Maintaining thorough records and tracking turnover or changes in business circumstances makes it advisable to initiate deregistration promptly when necessary. Consulting tax advisors or legal experts can also provide guidance on the precise timing and process for submitting VAT deregistration applications.

Final Return

In value-added tax (VAT) deregistration, the “Final Return” refers to the last VAT return that a business submits to the Federal Tax Authority (FTA) after the deregistration process is initiated. This final return holds significant importance as it summarizes the business’s tax liabilities, credits, and any outstanding dues until the deregistration date.

Key aspects related to the Final Return:

1. Completion of Transactions: The Final Return covers all transactions until the deregistration date. It includes sales, purchases, VAT collected, and VAT paid.
2. Input Tax Recovery: Businesses can claim input tax on remaining taxable supplies. This claim should be included in the Final Return for the FTA to process.
3. Clearance of Outstanding Dues: Any outstanding VAT payments or liabilities must be settled before submitting the Final Return. This ensures compliance with tax regulations.
4. Record Keeping: After deregistration, businesses must retain records for at least five years. The Final Return forms a crucial part of these records.
5. Submission Deadline: The Final Return must be filed within the timeframe specified by the FTA, typically within 20 business days from the date of deregistration.
6. Accuracy and Compliance: Ensuring accuracy in the Final Return, reflecting all relevant transactions and adjustments up to the deregistration date, is imperative. Failure to do so might lead to penalties or non-compliance issues.

Businesses should meticulously compile all necessary documents, including sales and purchase records, VAT returns, and any correspondence with the FTA, to facilitate the accurate preparation and submission of the Final Return.

Seeking assistance from tax consultants or accounting professionals can streamline the process, ensuring adherence to FTA guidelines and a smooth closure of VAT obligations as part of the deregistration process.

Who Can Submit the Deregistration Application?

A Value Added Tax (VAT) deregistration application must be submitted by an authorized representative or an individual with appropriate authority within the business. Typically, this responsibility falls on:

1. Authorized Signatories: Individuals who have been officially authorized by the business, as per the registered documents, to act on behalf of the entity in legal matters, including tax-related affairs.
2. Company Directors or Partners: Owners, directors, or partners of the business who possess the authority to make decisions concerning the business’s legal and tax obligations.
3. Tax Agents or Consultants: Businesses often engage tax agents or consultants to manage their tax-related matters. These professionals, if authorized, can submit the deregistration application on behalf of the business.

It’s crucial to ensure that the individual submitting the VAT deregistration application possesses the necessary authority and has been officially recognized as an authorized business representative. Additionally, they should have access to the required documentation and information to complete the application accurately.

The application for VAT deregistration involves providing specific details, supporting documents, and reasons for deregistration, necessitating attention to accuracy and compliance with the Federal Tax Authority’s regulations. Seeking advice from legal advisors or tax consultants can further ensure that the application process is executed correctly and in accordance with the applicable guidelines.

Late Deregistration and Penalties

In the UAE, failing to deregister for Value Added Tax (VAT) on time or delaying the deregistration process can result in penalties and financial implications.

Penalties for Late Deregistration:

1. Administrative Penalties: The Federal Tax Authority (FTA) may impose administrative penalties for non-compliance or late deregistration. These penalties can vary based on the specific circumstances, but typically involve financial fines.
2. Continued Tax Liability: Delayed deregistration might lead to continued tax liability. The business remains responsible for meeting VAT obligations until the FTA confirms the official deregistration date.
3. Accumulated Interest: Any outstanding VAT dues or liabilities might accrue interest for the duration they remain unpaid after the stipulated deregistration date.

Avoiding Penalties:

To avoid penalties associated with late deregistration:

1. Timely Assessment: Regularly monitor your turnover to determine eligibility for deregistration. If the criteria for deregistration are met, initiate the process promptly.
2. Compliance with Timelines: Submit the VAT deregistration application within the prescribed timeframe specified by the FTA. Typically, businesses have 20 business days to apply for deregistration from the occurrence of the event triggering the need for deregistration.
3. Clearance of Obligations: Ensure all outstanding VAT payments or liabilities are settled before the deregistration date. This includes filing VAT returns and paying any pending dues.
4. Accuracy in Documentation: Provide accurate and complete information in the deregistration application and all necessary supporting documents per the FTA’s requirements.

In cases with genuine reasons for the delay in deregistration, such as unforeseen circumstances or administrative issues, it might be beneficial to communicate and explain the situation to the FTA. However, it’s crucial to comply with the stipulated timelines and regulations to mitigate potential penalties and ensure smooth adherence to VAT obligations.

Saving Application as a Draft

For value-added tax (VAT) deregistration or any formal application submitted to the Federal Tax Authority (FTA) in the UAE, there might not be a specific provision for saving the application as a draft within the FTA’s online portal or system.

However, you can adopt several best practices to ensure you have a “draft” or a preliminary version of your application before final submission:

1. Prepare Offline: Create a comprehensive document offline (using word processors or spreadsheet software) containing all the required information for the application. This includes details, supporting documents, and reasons for deregistration.
2. Checklist Creation: Develop a checklist of required documents and details needed for the application. Tick off items as you gather or prepare them.
3. Work in Stages: Break down the application process into stages and save progress after completing each stage. For instance, gather documents first, then input details into the application form.
4. Regular Backups: Ensure you regularly save the document containing your application details and supporting documents in a secure location, whether on a computer, cloud storage, or an external drive.
5. Review and Verification: Before final submission, thoroughly review the prepared application to ensure accuracy and completeness.

Remember, while you might not be able to save a draft within the FTA’s system, maintaining a detailed, organized, and updated offline version of your application helps streamline the process and minimizes errors or omissions when you’re ready to complete and submit the application formally.

Wrapping Up:

Value Added Tax (VAT) is a cornerstone of contemporary taxation systems, fostering revenue generation while impacting businesses and consumers in multifaceted ways. As businesses navigate the complexities of VAT compliance and collection, understanding the intricacies of value-added tax (VAT) and its implications is crucial for businesses in Dubai. Navigating VAT compliance demands expertise and guidance, prompting many businesses to seek VAT consultancy services in Dubai. These services offer invaluable support, aiding businesses in comprehending VAT regulations, ensuring compliance, and optimizing tax strategies.