Understanding VAT in UAE: Should You Deregister?

A lot of small business owners are considering whether or not the coronavirus (COVID-19) pandemic’s trading impact makes now the right time for VAT deregistration in UAE.

When should I deregister?

A business in UAE must undergo the VAT deregistration process if any of the following scenarios apply:

  • If the business stops making a taxable supply and doesn’t intend to make a supply in the near future
  • If the business is sold (a new owner can retain the Tax Registration Number of an acquired company)
  • If the legal entity undergoes a change in its legal structure (to a limited liability company from being a sole proprietorship)
  • If the corporate body plans on joining a tax group registration
  • If the business was registered as it intended in making taxable supplies, however, it no longer intends in doing so
  • If the business is a representative of a tax group and the group will be disbanded

Read also: Voluntary Disclosure For VAT Return

Do businesses have VAT liability even with mandatory VAT deregistration?

  • If your business qualifies for compulsory or mandatory VAT deregistration in UAE and it holds assets on the exact day of the deregistration for the purpose of VAT, there are VAT liabilities for assets that have been disposed at their fair market value during the deregistration day.
    There are a couple of ways in eliminating or reducing potential VAT liability, including the following:
  • VAT payable has been based on the market value of stocks and assets on the date of VAT deregistration, fully taking into account the damage to goods, obsolescence of items, and depreciation among others.
  • There is no VAT liable for assets if the input VAT wasn’t claimed during the time they were purchased e.g. a used van bought from another business that wasn’t registered for VAT in UAE. There is an exception, however, and it’s when goods charged at the standard VAT rate were obtained as free from VAT because a business takeover was a going concern then.
  • No output VAT will be due for intangible assets like goodwill and patents.
  • There is no output VAT that will be payable by the business for the value of assets should the goods be classified as exempt from VAT in UAE or zero-rated.

How can I process the VAT deregistration in UAE?

Here are the general steps to follow for cancelling VAT registration in UAE:

Step 1: Notify the Federal Tax Authority re intent to deregister for VAT.

A taxable entity that intends to cancelling its VAT registration in UAE has to obtain, complete, then submit the official application form for the deregistration of VAT. The circumstance which gives rise to a VAT cancellation has to be stated clearly on the notice or in a different letter attached thereto. It is advised to have a regulated tax agent in Dubai or anywhere in UAE handle the process so as not to incur any penalties from errors and/or delay the process of cancelling VAT registration.

Read also: How To Select Your Regulated Tax Agent In UAE

Step 2: Wait for the issuance of an acknowledgement letter.

The Federal Tax Authority UAE will be issuing an acknowledgement letter that will inform the taxable person of the date on which its cancellation for VAT registration will take effect, including the applicable final tax period. This letter of acknowledgement will provide further instructions for the company regarding the deregistration process. A taxable entity has to continue charging the correct VAT rates on supplies that are made, and take into account all output tax while deducting input tax until after the last day of a final tax period (as advised by the local tax authority).

Step 3: Submit the final VAT return.

With respect to a final tax period, a taxable entity has to declare output tax and input tax in the final VAT return. Exit VAT, the output tax for assets that are on hand during the date of cessation, needs to be declared as well as the input tax and other output tax for a final tax period.

Take note: it is important to assemble all records. Prior to even submitting a notification to the FTA for VAT deregistration of your company, you should prepare all the receipts and payment records made to other VAT-registered businesses during a quarter or month. prepare as well the summary for payments received by the business for services performed or sales made during a final tax period.

Can I deregister for VAT voluntarily?

If your business expects its taxable sales for the next twelve months to be beneath the threshold for mandatory VAT registration, currently standing at AED 375,000, then you may proceed with the VAT deregistration process. Voluntary deregistration will take effect on a future date.

If you have questions related to VAT deregistration in UAE, call us here in VAT Registration UAE today!