Introduction
The implementation of Value Added Tax (VAT) in the UAE in 2018 introduced new responsibilities for businesses, including registration, tax filings, and compliance requirements. Along with VAT registration, however, businesses may also need to consider VAT deregistration in UAE at certain stages. Deregistration, or the process of canceling a VAT registration, is crucial for businesses that no longer meet the criteria for VAT.
This guide covers the reasons for deregistration, the mandatory and voluntary options, the step-by-step process, and critical considerations for businesses looking to deregister from VAT in the UAE.
What is VAT Deregistration?
VAT deregistration in UAE is the official process by which a registered business cancels its VAT registration with the Federal Tax Authority (FTA). Once deregistered, a business is no longer obligated to charge VAT, file VAT returns, or submit VAT records, streamlining operations and cutting administrative costs. This process, however, must be carried out carefully, as improper deregistration or failure to meet all VAT obligations can lead to fines and penalties.
Key Reasons for VAT Deregistration
VAT deregistration may be necessary for businesses in the UAE under various circumstances. Here are some of the most common reasons:
- Ceasing Business Operations: If a business ceases trading, VAT deregistration is mandatory. Continuing with VAT registration after ceasing operations could lead to avoidable administrative responsibilities and costs.
- Turnover Below the Mandatory Threshold: If a business’s taxable turnover falls below the threshold of AED 187,500, it is required to deregister from VAT. Businesses that fail to do so risk penalties for failing to comply with FTA rules.
- Change in the Nature of Supplies: If a business shifts to supplying only VAT-exempt goods or services, it may no longer need to remain VAT registered.
- Voluntary Deregistration: If a business’s taxable turnover falls below threshold of AED 375,000, the business has the option (though not the obligation) to deregister. This allows businesses to streamline operations and reduce the time and cost of VAT administration.
Mandatory vs. Voluntary VAT Deregistration
VAT deregistration can be mandatory or voluntary depending on the business’s circumstances:
a) Mandatory VAT Deregistration:
Under UAE VAT law, mandatory deregistration applies when:
- The business is no longer making any taxable supplies
- The business is making taxable supplies over a period of (12) consecutive months but below the voluntary VAT registration threshold of AED 187,500.
- Other reasons which affect the ongoing business operations, and the registrant is no longer eligible to be registered with the FTA for VAT purposes.
b) Voluntary VAT Deregistration:
Business may choose to apply for VAT deregistration on voluntary basis in case where the business is making taxable supplies over the past 12 months periods are above the voluntary VAT registration threshold limit of AED 187,500, but is below the mandatory registration threshold limit of AED 375,000. Voluntary deregistration is ideal for businesses looking to reduce the administrative burden of VAT compliance. However, before deciding, businesses should weigh the potential benefits against the costs associated with re-registering if turnover increases again.
How to deregister from VAT?
The VAT deregistration process in the UAE is managed through the FTA’s online portal. Here’s a step-by-step breakdown:
- Log in to the FTA Portal: Use your registered username and password to access the VAT dashboard.
- Submit the Application: Under the VAT registration section, select the option to deregister. The system will require basic details about the business and reasons for deregistration.
- Upload Supporting Documents: Attach relevant documents to support your application. This may include financial records or proof of changes in business activities.
- Complete VAT Obligations: Before deregistration is complete, the FTA requires that all VAT liabilities are settled, and any pending VAT returns are submitted.
- FTA Review and Approval: The FTA will review the application and, if approved, notify the business of the deregistration. The process typically takes up to 20 business days, although it may vary depending on specific case factors.
Critical Considerations for VAT Deregistration in UAE.
There are several factors businesses should consider when applying for VAT deregistration to avoid penalties and ensure full compliance:
1) Final VAT Return:
Upon deregistration, businesses must file a final VAT return covering the period from the last VAT filing to the deregistration date. This return should include all outstanding VAT liabilities and any VAT credits that may be due.
2) VAT on Remaining Assets:
If the business has any remaining assets (e.g., inventory, equipment) at the time of deregistration, VAT may be payable on those assets if they were previously subject to VAT. Businesses must assess the value of these assets to determine if any VAT liabilities remain.
3) Record-Keeping Requirements:
Even after deregistration, the FTA mandates that businesses maintain their VAT-related records for five years. This requirement ensures that the FTA can review past records if an audit or further assessment is necessary. Record-keeping should include invoices, financial statements, VAT returns, and other supporting documentation.
4) Potential Penalties:
The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law, the penalty is 1,000 AED in case of a delay and on the same date monthly thereafter, up to a maximum of 10,000 AED. The FTA enforces strict compliance, so businesses should be vigilant about these requirements.
Re-registering for VAT
A business that has deregistered from VAT can re-register if circumstances change, such as a rise in turnover above the mandatory threshold. The process of re-registration is similar to the initial registration and can be done through the FTA’s online portal. However, businesses should plan carefully, as re-registering may involve additional administrative efforts.
Conclusion
VAT deregistration in the UAE is an essential procedure for businesses that no longer meet VAT registration requirements. By canceling VAT registration at the appropriate time, businesses can save on administrative costs and avoid unnecessary VAT liabilities. However, deregistration requires careful handling to ensure all obligations are fulfilled, including filing the final VAT return, settling liabilities, and adhering to record-keeping requirements.
Understanding these steps and seeking professional assistance when needed can help UAE businesses navigate VAT deregistration efficiently and stay compliant with FTA rules. Given the complexity of VAT deregistration, especially for businesses with remaining assets or substantial financial records, it may be beneficial to consult with a tax advisor or VAT specialist. Professional assistance ensures that all VAT obligations are met, supporting documents are accurate, and the application process is smooth. This can help avoid potential penalties and streamline the transition to deregistration.
Feel free to reach out if you have more questions about VAT deregistration in UAE, and don’t hesitate to consult with a tax advisor for specific guidance tailored to your business!
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