Businesses in the UAE that are engaged in the supply of goods and services that are taxable are required to obtain VAT registration if their supply and import turnover meets the prescribed threshold level. Whereas, the process of VAT deregistration can be voluntary or mandatory depending on certain criteria that have to be met in the case of the business.

Also read: Excise Tax Registration

This article explains the process, conditions, and consequences of VAT deregistration in the UAE.

Understanding VAT Deregistration

VAT deregistration is the act of unenrollment of a business with the Federal Tax Authority (FTA) for VAT purposes. The business will not be expected to make any VAT charges on its supplies, file VAT returns, or meet any other VAT-related requirements. Deregistration is necessary for businesses that do not fulfill the conditions of VAT registration.

Conditions for VAT Deregistration in UAE

There are two primary conditions under which a business can apply for VAT deregistration in the UAE:

Mandatory Deregistration: A business must apply for deregistration if it does not qualify for the mandatory VAT registration anymore. This can occur in the following scenarios:
Cessation of Taxable Supplies: If a business stops making taxable supply of goods or services it must apply for deregistration. This may occur if the business ceases to exist or transformation of the business in a manner that it has no activities that can be subject to VAT.
Falling Below the Threshold: In case the total value of the supply and imports of goods and services subject to VAT of a business over the last year is less than the voluntary registration threshold of AED 187,500; the business has to de-register from VAT.
Voluntary Deregistration: A business can choose to voluntarily deregister for VAT if it meets the following condition: A business can choose to voluntarily deregister for VAT if it meets the following conditions:
Falling Below the Mandatory Threshold: If the total value of the business’s taxable supplies and imports over the preceding twelve months is above the voluntary threshold (AED 187,500), but below the mandatory registration threshold (AED 375,000), the business has the option of applying for voluntary deregistration.

VAT Deregistration Process in UAE

To deregister for VAT in the UAE, it is necessary to follow certain steps that would help in ensuring that all the laid down procedures by the FTA are followed.

Step 1: Request for the De-registration of the Charity

The procedure of deregistration begins with the filing of an application to the FTA. This is done through the FTA’s online portal as detailed in this paper. The application has to be submitted within the next 20 business days after the business has fulfilled all the conditions for deregistration.

Step 2: Examination of Liabilities That Are Yet to Be Paid

The business cannot deregister with the FTA before paying all the outstanding VAT that it owes. This entails all the VAT that was due on prior returns, penalties, and interests. It is necessary to check that all VAT returns have been submitted and the corresponding payments have been made up to the moment of deregistration.

Step 3: Filing of the Last VAT Return

Once the deregistration application has been made and all the dues are cleared, the business has to file a final VAT return. This return should be from the time a VAT return was last filed to the time of deregistration. The final return makes sure that all the VAT has been reported up to the time of exit of the business from the register.

Step 4: Signature from FTA

Once the last VAT return is filed, and all the obligations have been met, the FTA will consider the application for the deregistration of the account. If everything is in order, the FTA shall approve the deregistration and the latter will be confirmed. The business then officially deregisters from VAT.

Implications of VAT Deregistration

The following are some of the effects of ceasing the VAT registration of a business. It is important to know these consequences to avoid some actions or take them.

No Longer Charging VAT: After deregistration, the business will not be expected to make VAT charges on the supplies it makes. This could indeed make the business more competitive as the products and services offered by the business may be cheaper to the consumer who is not registered for VAT.
Compliance and Reporting: After deregistration, the business will not be required to submit periodic VAT returns or adhere to the provisions of the VAT Act on record-keeping. This can minimize the amount of paperwork and the related costs of meeting VAT obligations.
Reclaiming Input VAT: Among the consequences, it is worth mentioning that deregistered businesses cannot claim input VAT on materials they buy. This means that the cost of purchases may effectively increase as it will be the business’s responsibility to pay VAT on inputs.
Handling Pre-Deregistration Transactions: One has to ensure that any transaction that was carried out before deregistration was done correctly. This entails the preparation of VAT invoices for supplies made up to the date of deregistration and payment of any remaining VAT liabilities.
Potential Re-registration: In the future, if a business’s circumstances change and it crosses the registration limit again, then the business will have to register for VAT again. This could affect the management of the business and might cause some forms of interruptions in the course of the business.

Common Challenges and Solutions

Deregistering from VAT can be a rather tricky process and firms may come across several issues. Here are some common issues and their solutions: Here are some common issues and their solutions:

Managing Outstanding Liabilities: It is important to ensure that all the VAT liabilities are paid and this can be complicated by items such as pending disputes. It is required to check all the VAT returns and payments submitted and made. It is advised to talk to a tax consultant or an accountant to sort out any issues and make sure that all the taxes have been reported correctly.

Timely Submission of Deregistration Application: It is required that the deregistration application shall be made within 20 business days from the time the deregistration conditions are met. The late submission of this paper will attract penalties. It is recommended that your business’s VAT position be monitored frequently. Provide for the setting of alarms and company procedures that would require the filing of deregistration applications on time.

Filling the Last Return of VAT: The last return has to be filed for the period up to the date of the deregistration and this may entail some computations and adjustments. It is recommended to turn to a tax specialist to correctly fill in the last VAT return and ensure there are no errors. Make sure that all the transactions for the period up to the deregistration date are recorded appropriately.

VAT Deregistration Penalty in UAE

Not submitting a VAT deregistration application when it is due can lead to penalties and fines imposed by the FTA. Therefore, businesses seeking to deregister for VAT must seek help from VAT consultants in the UAE to ensure their compliance with all regulations. We will be able to provide support and advice throughout the process of VAT deregistration in UAE.

If you do not deregister for VAT in time or within a specified timeframe given by the local authorities on taxation, the penalty fine to be paid is AED 10,000.
If you do not provide authorities with the requested records in the Arabic language, the penalty fine to be paid is AED 20,000.
When appointing a legal representative, the business must inform the FTA within a specified timeframe. In case of violation, a penalty fine of AED 20,000 will be imposed on the legal representative.
In case of amendment in any tax record when deregistering VAT, you are supposed to inform FTA about it. If you do not do so, a penalty fine of AED 5,000 is to be paid for the first time while AED 15,000 will be fined in case of repetition.
If you do not keep the records requested by the tax authorities, the penalty fine to be paid is AED 10,000 which will become AED 50,000 in case of repetition.
For submitting an incorrect final tax return, there are two types of penalties. One is a fixed penalty which is AED 3,000 for the first offense while AED 5,000 in case of a repeated violation. The other type of penalty in this scenario is a percentage-based penalty which will be applied to the unpaid amount on FTA due to any errors. If the business does not voluntarily disclose the mistakes to the FTA, it will owe the FTA 50% of the amount as a penalty.
The local tax authority may request the business to appoint a legal representative for filing the tax return. In case of not doing so within a specified timeframe, a penalty of AED 1,000 will be imposed on the legal representative. If this violation is repeated within 24 months, the penalty would be increased to AED 2,000.

Seek the Expert Services of VAT Registration UAE

The process of de-registration from VAT in the UAE is a systematic one that requires businesses to meet a set of conditions, pay all due VAT, and file correct final VAT returns

Thus, businesses should seek the expert services of VAT Registration UAE, a reputable Tax Consultant in the UAE to effectively meet all VAT requirements and meet compliance.

FAQs

What Would Be the Causes to Deregister for the VAT?

VAT deregistration must be done when a business stops or if its taxable turnover is below the voluntary registration of AED 187,500. Another way which is voluntary deregistration may also be possible if the business’s taxable turnover is between AED 187,500 and AED 375,000.

How Many Months Have a Trader Applied for VAT Deregistration?

The filing of the application has to be made within 20 business days from the event that requires deregistration, brought about by Article 21 of the VAT Law.

To Whom Can the VAT Deregistration Application Be Made?

The registered person can file a VAT deregistration application online by himself, or the tax agent, or legal representative to the Federal Tax Authority.

What Are the Consequences of the Failure to Be Deregistered Within Stipulated Time?

If the deregistration application is not submitted before the above-mentioned time frame, initially the person shall be fined AED 1,000 and for each subsequent delay, a fine of AED 1,000 up to a maximum of AED 10,000 can be imposed.

How Long Does It Take to Complete the VAT Deregistration Process?

The FTA may complete the process of the VAT deregistration application within 20 business days of receiving such an application. However, if a client needs more information, extra time for processing will be necessary.

Whether Deregistration Applications Can Be Saved as a Draft?

Yes, it’s possible to save the deregistration application in progress in draft mode to continue its filling at a later time but within 60 Calendar Days from the initiation of the application, you will be deemed to have abandoned it.

What Happens to the Emara Tax Account When One Deregisters?

No, this does not deactivate your Emara Tax account as registration for VAT does not involve de-registration. However, the account will still be visible to the user while the status of VAT registration will be changed to E8 – Deregistered.