VAT deregistration in UAE is the cancellation of a taxable entity’s registration for VAT. When the Federal Tax Authority or FTA in UAE approves of the application for VAT cancellation, then the registration will be rescinded.
As per the FTA’s regulations, businesses can apply for either voluntary deregistration for VAT or mandatory VAT deregistration. Whether the VAT cancellation is non-mandatory or mandatory, a taxable entity has to comply with a set of eligibility criteria and conditions in order for the local tax authority to approve of the deregistration.
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For compulsory or mandatory VAT deregistration in UAE, the business has to have stopped dealing in any taxable supply or its expenses and/or supplies for the previous twelve months, including in the next thirty days, no longer exceed the threshold for mandatory registration – currently at AED 375,000. A business can voluntarily deregister for VAT in UAE when it’s past twelve months and its supplies and/or expenses already dropped lower than the current threshold for voluntary VAT registration, which is at AED 187,500.
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Potential Penalties with VAT Deregistration in UAE
There are a number of penalties that a business can occur when processing its VAT cancellation as the authorities will have to conduct several reviews prior to allowing the taxable entity to cease its registration. Here are the most noteworthy penalties for violations that are best avoided:
- Failure in processing VAT deregistration on time or within the specified timeframe set by the local authority on taxation – the penalty is AED 10,000
- Failure in keeping records that are requested by the tax authorities – AED 10,000 penalty for a first offense or AED 50,000 for a repeated violation
- Failure in providing the authority requested records in the Arabic language – a penalty of AED 20,000
- Failure in informing FTA of an amendment with the tax records, which are requested for VAT deregistration – AED 5,000 if the offense is a first or AED 15,000 if the taxable entity has made the same mistake before of not notifying the authority of tax record amendments
- Failure in notifying FTA a legal representative was appointed by the business in the specified timeframe – penalty imposed on the legal representative will be AED 20,000
- Failure of an appointed legal representative in filing the tax return requested by the local tax authority within a specified timeframe – penalty will be charged onto the appointed representative with the amount of AED 1,000 if it’s the first offense or AED 2,000 for a repeated offense in the span of twenty-four months
- Submission of incorrect final tax return – there will be two penalties for the violation. The fixed penalty can either be AED 3,000 if it’s the first offense or AED 5,000 for a repeated violation. For the percentage-based penalty, it will be applied to the amount that’s unpaid on the FTA because of an error(s). Fifty percent of the amount owed by the business will be due to the FTA if it doesn’t voluntarily disclose the error to the tax authority or when it’s already asked by the FTA to provide information regarding the error. Thirty percent of the amount owed by the business to the FTA will be the percentage-based penalty if the business chooses to make a voluntary disclosure following the receipt of notification of the FTA regarding the error. Five percent of the money owed to FTA will be the percentage-based penalty when the voluntary disclosure is done prior to receiving any notification from the FTA regarding an error.
- Voluntary disclosure of a business regarding errors on any of its previous tax returns, refund applications, or tax assessments – the fixed penalty is either AED 3,000 (for a first offense) or AED 5,000 for a repeated offense. The percentage-based penalty will either be 50 percent (for making a disclosure following FTA review), 30 percent (for voluntary disclosure following receipt of notification from FTA, or 5 percent (for voluntary disclosure prior to getting any notification from the FTA.
- Failure of a taxable entity in facilitating an FTA auditor’s work or review – a penalty of AED 20,000
- Failure of the taxable entity in complying with conditions and processes relevant to the issuance of e-tax invoices and e-tax credit notes – AED 5,000 for every incorrect document
- Failure by taxable business in issuing tax credit notes or the alternative documents – a penalty of AED 5,000 will be imposed on the business for each document that is missing
- Failure by taxable business in issuing a document for a supply – AED 5,000 for the missing tax invoice
Read also: How to Cancel VAT Registration?
When processing your VAT deregistration in UAE, you have to follow the appropriate steps including fulfilling all conditions for VAT cancellation, submitting a final tax return, and paying the dues, especially fines for violations. For assistance with VAT deregistration, call us here in VAT Registration UAE today!