The newly issued public clarification released by the Federal Tax Authority of UAE provides a guide on the obligations of natural persons in UAE for the registration of VAT with respect to sole establishments.
Natural persons who own several sole establishments only have to obtain a single registration for VAT in UAE for all of their sole establishments. This means there is no need to undergo different VAT registrations in order to register different establishments. In certain cases, the FTA will review VAT registrations undergone by taxable persons with respect to sole establishments. Corrective steps have been taken by taxable entities, as applicable.
What are sole establishments in UAE?
Sole establishments are businesses that are owned fully by natural persons. Sole establishments don't have legal personalities that are independent of their owners. They considered, therefore, the same entity as their owners. Take note: this public clarification recently released is not applicable to one-person companies or LLCs. They are separate and distinct entities from their owners. In order to avoid confusion and doubt, one should remember a legal person like a company won't be able to have ownership of a sole establishment.
The process of VAT registration for UAE sole establishments
A natural person can own several different sole establishments, as mentioned earlier. The person may, for example, undertake different kinds of businesses that belong to different industries or business sectors.
Is there a need to register for VAT in UAE?
VAT registration is mandatory for businesses with an annual turnover that reached the mandatory threshold for UAE VAT registration. That set is currently at Dhs 375,000. It is absolutely necessary to keep a keen eye on the turnover of a business. If you think you are going to hit the mandatory registration threshold for VAT in UAE. Then registration is undertaken as soon as possible. A common mistake of business owners is waiting until a calendar year ends. Or waiting until the authorities knock on their doorstep.
A business owner operating in UAE should also register for VAT when the turnover of the business is expected to exceed the registration threshold in the following thirty days. This is often applicable to businesses that are expecting a large contract that's under negotiation with customers. Under this rule, VAT registration is a requirement as the large contract will have to be subject for VAT.
All required registration documentation is best given to the experts or specialists on VAT in UAE for review in order to complete the VAT registration process quickly and successfully. Also, regulated tax agents in UAE can provide updates on VAT policies which change regularly.
Is there a consequence from not registering for VAT in UAE?
Whenever a business fails in registering for VAT during the correct time, then it will be liable in settling the amount of fine or penalty. It is not recommended to simply wait for fines as a penalty can revocation of trade licenses for serious violations. Fines can be calculated at five to fifty percent, depending on days of missing VAT registration. A business should keep copies of the notification for registration for VAT given by authorities.
Is it possible to voluntarily register for VAT in UAE?
It is possible to register for VAT if the business has a turnover of Dhs187,500 to Dhs375,000. As a matter of fact, the majority of businesses do. Having a tax registration number or TRN allows a business in appearing to be bigger and more established than it actually is. When quoting for services or work, there are companies also that their supplies become register for VAT. A lot of small to medium size enterprises in the UAE undergo VAT registration in UAE as they are able to claim VAT refunds for items that are used for business purposes.
It is worth noting that VAT registration can make a business have more expensive products or services in comparison to competitors that are not registered. For instance, for your business that is not yet registered for VAT as of the moment. That is also selling an item at Dhs100, customers will only have to pay that amount for that certain item. When the business is VAT-registered in UAE, then it will have to charge the correct VAT amount or soak the difference up and reduce the margins for profit.