The implementation of the Value Added Tax in the UAE at the beginning of the year January 2018 was a great step signaling the UAE diversifying revenue sources other than the traditional oil wealth. Every company operating in the UAE that deals with the supply of tangible and or other goods and services that attract the payment of the Value Added Tax, is supposed to register for this type of taxation if their turnover surpasses a specific level. There are some situations when businesses may have to deregister from the VAT scheme. It is important to note that this is done on condition that the process is either compulsory or done voluntarily based on certain conditions.
Deregistration For VAT
VAT deregistration can be recognized as the process of removal of a business from the Value Added Tax registration maintained by the Federal Tax Authority. The moment a business is deregistered, it is credited with the formal legal right to no longer charge VAT for supplies, file VAT returns, or fulfill other criteria that are associated with this tax type. Specifically, deregistration is more useful for companies that fail to go through the legal provisions of VAT registration or companies that have found the cost of compliance to be too steep. Therefore, the management has to take serious steps towards the procurement of better advice from some of the best tax consultants.
Conditions for VAT Deregistration
There are two primary scenarios under which a business in the UAE can apply for VAT deregistration:
Mandatory Deregistration:
A business is obliged to de-register the undertaking if it is not able to meet the statutory threshold requirements for VAT registration.
The following circumstances cover:-
- Cessation of Taxable Supplies:- If, for any reason, a business no longer makes any taxable supplies of goods and/or services, it will need to apply for deregistration. This could happen for many reasons; perhaps the company has shut down or has taken a new form of operation that leaves it with no business to tax.
- Falling Below the Threshold:- A business that has registered for VAT shall deregister upon the following circumstances that the total value of the business’s taxable supplies and imports for the last year has been less than the voluntary registration threshold, which is AED 187,500.
Voluntary Deregistration:
Some of the conditions required for a firm to voluntary demerge from VAT may include :
- Falling Below the Mandatory Threshold: The voluntary deregistration threshold is AED 187,500 while the mandatory deregistration threshold is AED 375,000 for the previous twelve months, should a business taxable supplies and imports are more than the former and less than the latter, the business may apply for the deregistration.
The VAT Deregistration Process:-
The business should follow the FTA regulations to be deregistered for VAT in the UAE as per steps given below:-
- Submitting a Deregistration Request: The process is initiated where the companies complete the deregistration application using the FTA online application form. The deregistration application has to be filed within 20 business days from the day the company met the above mentioned criteria.
- Clearing Outstanding Liabilities:- In order for deregistration to be effective, it has to be noted that the business cannot deregister for VAT until they pay all the arrears of VAT to the commissioner of taxes including unpaid VAT on previous returns, penalties, and interest. Cross-checking whether all VAT returns have been filed and all payments.
- Filing the Final VAT Return:- After applying for registration and payment of all the balance amounts noticed to be owed by the business, the business has to file a final VAT return. This return should ideally cover the period between the last filed VAT return up to the date of deregistration and the VAT figure should accurately account for all the VAT.
- FTA Approval:- FTA review of the application occurs once the last VAT return has been filed as well as compliance with the requirements. If all requirements are met, the FTA will grant a deregistration, and the business will be officially off the VAT register.
Implications of VAT Deregistration
Deregistering from VAT in the UAE has several implications that businesses need to be aware of:
- No Longer Charging VAT:-In this way, after deregistration, the business will not charge VAT on their supplies which will also make its goods and services cheaper than those of VAT registered customers who will have to pass the tax onto the final customer.
- Reduced Compliance Burden:- VAT registered enterprises are freed from periodic filings of VAT returns and VAT record keeping hence less paperwork and compliance expenses are incurred by the business.
- Inability to Reclaim Input VAT:- The deregistered will be barred from recovering input VAT on their acquisitions which they would have used to meet their input costs.
- Handling Pre-Deregistration Transactions: Companies should be able to satisfy the provisions of law that requires all transactions within a specific period of the deregistration of a company be accurately accounted for by the issue of VAT invoices and /or payment of outstanding VAT amounts.
- Potential for Re-registration:- If there is any future change of circumstances in the business then in case of the taxable turnover rises above the registration limit, it must register for VAT which would impede the business.
Common Challenges and Solutions:-
Here are some common issues with their solutions in deregistration process:-
- Managing Outstanding Liabilities:- It is always challenging to make sure that all the VAT returns are paid since it may have some outstanding disputes. In case there are such problems, it is recommended to contact a tax consultant to address the existing problems and make the correct statements.
- Timely Submission of Deregistration Application:- The application for deregistration must be done within twenty business days after the specified criteria have been met. The penalties can follow when a submission is done late, and thus, there is the need to check the VAT status and its instances regularly and constantly set reminders to ensure that the submission is done on time.
- Filing the Final VAT Return:- The last to return may publish data with additional computations and eliminations. It is advised to consult a tax specialist mainly to make sure that everything has been calculated and prepared correctly.
Frequently Asked Questions
What are the VAT deregistration causes?
When a business can apply for VAT deregistration?
Where and how does the application for VAT deregistration be submitted?
Are there penalties for missing the registration deadline?
What is the duration of the VAT deregistration Process?
Is there any possibility to save the draft of the deregistration application?
What is the status of the EmaraTax account after deregistration?