In UAE ‘dynamic’ business environment, there are circumstances where some of the companies will be required to cancel their VAT registration. This key step helps avoid fines and keeps operations smooth.
VAT deregistration lets a business or person end their VAT registration when they stop VAT-related work. But how can you accomplish this correctly? Let’s see what you need know about VAT deregistration in the UAE.
Key Takeaways:
- VAT deregistration is required when stopping VAT-related activities or changing business structure.
- It ends VAT collection but removes input VAT recovery, affecting costs.
- You must update records, settle VAT dues, and meet final compliance.
When Should You Request Deregistration Of VAT In UAE?
If your company stops VAT-related activities, you must apply for VAT deregistration within at least 20 business days. The main situations where a business or individual can seek VAT deregistration include:
Business Structure Changes
When your business changes, like moving from a partnership to a sole owner or the other way, you may need to deregister from VAT in UAE. In these cases, the business must either update its info with the FTA or deregister and maybe re-register under the new setup, based on the type of change.
Less Taxable Sales
Companies with yearly taxable sales under AED 375,000 can opt to deregister. This might happen due to decreased sales, changes in business direction, or market shifts that lower your need for VAT registration.
Business or Asset Transfer:
When a business transfers all or a big part of its assets to another entity—like during a merger, buyout, or sale—deregistration of VAT might be needed. This ensures the change is handled right, and VAT duties are settled.
Stopping Business
When your business shuts down due to financial failure or other causes, canceling your VAT registration is essential. This step ensures your company stops collecting and remitting VAT, matching your legal duties with your current business situation.
Deadline For Filing A VAT Deregistration Request
To start the deregistration process, you need to send your application to the Federal Tax Authority (FTA) within 20 business days after the event that triggers the need to deregister, as outlined in Article 21 of the VAT Law.
Steps To Deregister From VAT In UAE
Ending your VAT registration in the UAE requires following specific steps. Here’s a simple
guide:
1. Verify your eligibility
Check if your business meets the conditions for cancellation, like dropping below the tax threshold, stopping operations, changing its setup, or other relevant factor
2. Pay Any VAT You Owe
Before you begin the deregistration procedure, check sure you have paid any outstanding VAT liabilities. This involves submitting any pending VAT returns, paying outstanding balances, and addressing any FTA assessments or audits.
3. Inform the FTA
Submit your deregistration request to the FTA within the specified timeframe using their online portal or other approved methods. Provide all necessary details, including reasons for deregistration and any required supporting documents.
4. Revise Records
Update your company records to reflect your new VAT status. This includes changing invoices, contracts, and other essential papers to reflect that your company is no longer VAT registered.
5. Send Back VAT Certificate
If you have a VAT registration certificate, return it to the FTA once the deregistration process is complete. This step confirms your changed VAT status with the authorities.
6. Meet Final Reporting Requirements
Even after deregistration of VAT in UAE, you may need to fulfill some last reporting duties. This could involve submitting final VAT returns or other reports covering the period up to deregistration. Following these last steps ensures you comply with FTA regulations.
7. Keep Records
Preserve all documentation related to the VAT deregistration process for future reference or potential audits. Keep any correspondence with the FTA and other relevant documents to show compliance.
Reasons Your Deregistration Application Might Be Rejected
Your deregistration request could be denied under certain conditions:
- Delayed Submission: Failing to apply within 20 business days may lead to deregistration refusal.
- Outstanding Debts: Your request won’t be accepted if you have unpaid taxes or administrative fines.
- Missing Tax Filings: Deregistration will be rejected if you haven’t submitted all required tax returns for the registration period.
- Not meeting deregistration criteria within the given timeframe can result in a AED 10,000 fine, according to Cabinet Resolution No. 40 of 2017 on Administrative Penalties for UAE Tax Law Violations.
Effects of VAT Deregistration
Understanding how VAT deregistration affects your business is crucial. Here are some key impacts:
1. No More VAT Charges
Post-deregistration, you’ll stop adding VAT to sales, possibly enhancing your offerings’ appeal, particularly for clients who aren’t VAT-registered themselves.
2. Less Paperwork
Once deregistered, you no longer need to submit regular VAT returns or follow VAT record-keeping rules, reducing administrative tasks.
3. No Input VAT Claims
Post-deregistration, you can’t claim input VAT on purchases, meaning you’ll pay the full VAT cost on your inputs, which could increase overall business expenses.
4. Managing Pre-Deregistration Activities
Properly document all transactions before deregistration, including issuing VAT invoices and settling any VAT dues up to the deregistration date.
5. Possible Future Re-registration
If your business situation changes and you surpass the registration threshold again, you might need to re-register for VAT. This could affect operations and require additional administrative changes.
Impact on Business Relationships:
Deregistration can affect relationships with customers and suppliers who prefer dealing with VAT-registered entities, especially for VAT recovery purposes.
UAE VAT Deregistration Fines
Not deregistering on time or as required can result in various FTA penalties. Consulting VAT experts can help ensure compliance and avoid these VAT related fines. Key penalties include
- AED 10,000: For not submitting the deregistration application within the specified timeframe.
- AED 20,000: For not providing requested records in Arabic.
- AED 5,000 to AED 15,000: For failing to inform the FTA of changes in tax records during deregistration.
- Up to AED 50,000: For not keeping required records.
- AED 3,000 to AED 5,000: For submitting incorrect final tax returns, plus up to 50% of the unpaid VAT for undisclosed errors.
Why Select Emifast for UAE VAT Deregistration?
VAT deregistration in UAE is a structured process requiring businesses to meet specific conditions, clear all VAT dues, and accurately file final VAT returns. Emifast provides expert guidance, customized solutions, and comprehensive support to help businesses navigate VAT deregistration complexities smoothly. Our experienced team ensures you remain compliant, avoid pitfalls, and manage the deregistration process confidently.
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