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VAT Deregistration Penalties in UAE

Deregistration of VAT in UAE can be a costly decision. If your company is registered for VAT and you decide to deregister, you will need to pay a penalty.

Companies that are not registered for VAT and do not submit any supplies or transactions subject to VAT during any specific taxable period are considered “outside of scope” companies, and are not required to register for or VAT return filing." It is important that businesses are aware of the penalties for failing to deregister for VAT. If a business is found to be in breach of the rules, it could face fines and even criminal prosecution.

The United Arab Emirates (UAE) has introduced a value-added tax (VAT) system in the coming month. All businesses with an annual income exceeding AED 375,000 must be registered for VAT regardless of their size or sector.

What is VAT Deregistration?

VAT deregistration in UAE is a straightforward process, but it is important that businesses comply with the rules and make sure they complete their VAT deregistration correctly. It is a process that businesses have to complete when they no longer wish to pay VAT or are not eligible to do so. The penalty for failing to deregister can be heavy, and businesses must ensure that they are compliant with all applicable regulations.

Eligibility for VAT Deregistration in UAE

In order to be eligible for VAT deregistration, businesses must meet certain criteria, as set out by the Federal Tax Authority (FTA). These criteria include but are not limited to:

  • Having zero UAE VAT liability for a consecutive period of 12 months
  • No taxable supplies or imports in the preceding 12 months
  • Being financially solvent

It is important to note that businesses are only eligible for VAT deregistration if they have not been registered for more than one year. Any business that has been registered for more than one year will need to seek approval from the FTA before being allowed to deregister.

Please note that VAT deregistration must be applied for in the same way as registration, i.e. via the FTA portal, and only once all outstanding VAT obligations have been met. The process of deregistering for VAT should take no longer than 10 working days from when an application is submitted and approved by the FTA.

If your business meets these requirements then you should be able to proceed with the VAT deregistration process and if you want some more information on the process, then VAT registration in the UAE can provide advice and assistance with the process. The FTA has set up an online portal that allows businesses to complete their VAT deregistration and submit any relevant documents. Farahat & Co, the leading VAT consultant in Dubai can help to ensure that you are compliant with all relevant regulations so that your business does not incur any unnecessary penalties.

When Should I Apply for VAT Deregistration?

You should initiate your VAT deregistration process when any of the following applies:

  • Your annual turnover or revenues have decreased and no longer meet the minimum VAT threshold of AED 375,000;
  • You are leaving the UAE;
  • You are merging your business with another entity, or you’re taking over another existing business.

How Do I Apply for VAT deregistration?

You can apply for VAT deregistration in the UAE through the Federal Tax Authority’s (FTA) e-Services portal. Your UAE VAT consultants will provide you with step-by-step assistance to make sure your application is done correctly and on time.

What Documents Do I Need for VAT Deregistration in UAE?

You need to provide the following documents along with your application:

  • Your valid Emirates ID;
  • A copy of the declaration form, signed and dated by an authorized signatory;
  • An attested trade license or commercial register;
  • A no-objection certificate from the UAE Ministry of Economy;
  • A copy of your VAT return filed for the month prior to the date of submission.

What Are the Penalty Fines Against the VAT Deregistration in UAE?

Not submitting a VAT deregistration application when it is due can lead to penalties and fines imposed by the FTA. Therefore, it is important that businesses seeking to deregister for VAT seek help from VAT consultants in UAE
in order 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 it 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 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 a period of 24 months, the penalty would be increased to AED 2,000.

These are just some of the key points to consider when applying for VAT deregistration in the UAE. We Farahat & Co can help make sure that you comply with all requirements during this process and avoid hefty penalties from the FTA. We are here to help with all your UAE VAT needs, so don't hesitate to reach out for assistance. Contact us today for more information about VAT deregistration and how we can help you stay compliant with the UAE’s Tax Laws.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.