If your business annual taxable supplies amount to less than AED 375,000, you’ll be able to cancel your VAT registration in UAE which can bring some advantages. But, there can be costs as well and you need to be aware of all the potential traps.
For businesses in UAE selling to other businesses that aren’t able to reclaim the VAT they paid on purchases or the general public, it can be seen as a competitive advantage if the business deregisters for VAT. As there is no need in adding VAT to the sale price of your offerings, your business can undercut its competition. You can also keep the same prices to make more profit.
If you wish to undergo VAT deregistration in UAE, either permanently or temporarily, your business annual turnover must be below the limit for VAT deregistration. But, before you send in your application, consult with a tax professional in UAE and take expert advice as there’s a couple of potential pitfalls you may not want for your business.
Beware of losing input VAT
Don’t forget that as soon as you cancel your registration for VAT in UAE, you won’t be allowed in reclaiming input VAT for business purchases. But, this will only reduce the savings of your business by a small amount.
Requirement to pay VAT liability for assets help on VAT Cancellation
If your business is still holding assets when it decides to deregister, your business may acquire VAT liability which needs to be settled. VAT liability will be for assets that are deemed to be disposed of already at a fair market price on that day.
There are a couple of ways in reducing or eliminating potential VAT liability, including the following:
- VAT payable by the business is based on assets’ market value on the VAT deregistration date, taking into account the damage acquired by the goods, obsolescence of items, and depreciation.
- There will be no VAT that is liable for an asset if the input VAT wasn’t claimed by the fiscal period it was purchased. An example is a secondhand van that was bought by the business from a supplier that wasn’t registered for VAT. An exemption is when a standard-rated good was obtained as VAT-free because of the business takeover being an ongoing concern.
- No output VAT is payable for the value of company assets should the goods be VAT exempt or zero rates.
- There is no output VAT that’s due for an intangible asset like goodwill or a patent.
Post VAT Deregistration Expenses
On the final VAT return filing, the business must take into account the VAT for unpaid sales invoices. The business can also reclaim input VAT for unpaid purchase invoices. As soon as you submit your final VAT return, it’s not too late for you to make claims for business expenses. You will be able to claim input VAT for purchase invoices like accounting fees which are dated following VAT deregistration provided that they are in relation to a period in which your business was registered for VAT in UAE.
Acquire a new Tax Registration Number
If your business will change its company structure e.g. from a sole proprietorship to a limited liability company in UAE, then the sole trader will cancel the registration from VAT. This is what is recommended by all regulated tax agents in Dubai, UAE. The new company, however, should become registered for VAT on the same exact day as it deregistered. The new business can retain the old tax registration number; however, it will mean that the new company will assume the responsibility if there are potential VAT liabilities. This can include any errors that were made in the past years. To avoid unquantifiable risks, it’s always advised to begin afresh with a brand new tax registration number.
If your VAT-registered business in UAE has ceased trading and is no longer making plans to have taxable sales in the future, then it should deregister with effect from trading’s final day. But, there’s a scope for businesses to extend the date, capturing some purchase invoices for input VAT reclaim purposes. There may also be professional dues to pay which occur when your business makes the last and final sale.
While it can seem very obvious that VAT deregistration in UAE has advantages and disadvantages alike, you may still want to take the advice of tax specialists in UAE. Caution is advice prior to making any decisions and proceeding with them as you may also have to mitigate costs associated with VAT cancellation.
Also, you may have to gather records and accounts for relevant receipts and invoices as they will be required for the business’ final VAT return filing. In order for you to properly handle all the subsequent VAT matters, call us here in VAT Registration UAE today!