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The inception of VAT in the UAE on January 1, 2018, brought forth a standard rate of 5%. A business becomes liable for VAT registration if its taxable supplies and imports exceed AED 375,000 annually. However, there’s also an option for businesses to opt for voluntary registration. It can be opted if their taxable supplies and imports surpass AED 187,500 per year. Additionally, certain circumstances allow for the deregistration of VAT in the UAE. This article aims to shed light on the scenarios wherein a business may undergo deregistration for VAT in the UAE. But before delving into those specifics, let’s establish the foundational understanding of VAT.
What exactly is a value-added tax (VAT)?
A VAT is a tax imposed on the consumption of goods & services at each stage of the supply chain. VAT is typically levied as a % on the final sale price of goods or services. VAT requires businesses to collect taxes on behalf of the government, ultimately remitting these funds to the authorities. As an indirect tax, the end consumer bears the final burden of VAT. The businesses serve as intermediaries in the collection process.
Compared to income tax, VAT is considered less volatile because it is based on consumption, which tends to be more stable than income. Consequently, VAT serves as a reliable income source for governments in numerous countries globally. Moreover, to prevent double taxation, businesses can claim input VAT on their business-related purchases. Therefore, VAT registration becomes imperative for businesses to remit VAT to the government and claim input VAT on their acquisitions.
Under what circumstances should deregistration for VAT occur in the UAE?
The UAE’s VAT regulations areprimarily governed by Federal Decree-Law No. 8 of 2017
Article 21 of the VAT law mandates deregistration in the following scenarios:
1) When a business ceases providing taxable supplies or, essentially, discontinues its operations.
2) If the business’s turnover in the preceding 12 months falls below AED 187,500, with no expectation of exceeding it in the subsequent 30 days.
Article 22 allows businesses to apply for voluntary VAT deregistration if their taxable supplies in the preceding 12 months were below the mandatory threshold of AED 375,000. However, as per Article 23, businesses registering voluntarily initially cannot apply for deregistration within the first 12 months from their registration date.
The timeline for applying for VAT deregistration is addressed in Article 14 of the Executive Regulation of Federal Decree-Law No. 8 of 2017. A tax registrant must apply to the authority within 20 business days of meeting any mandatory deregistration conditions.
Should the authority approve the deregistration application, the registration gets canceled effective from the last day of the tax year or any alternative date determined by the authority.
In cases where a business fails to apply for deregistration, the authority (FTA) holds the power to cancel registration upon determining non-compliance with the conditions of Article 21. The registrant must be informed of the deregistration’s effective date within 10 business days of this decision.
For voluntary deregistration requests, the authority cancels the VAT registration on the date requested by the business or registrant. However, in the absence of a preferred date, the authority will cancel the registration from the date of application.
It’s crucial to note that a business or tax registrant will not be deregistered if there are any pending taxes or penalties under the VAT law or Federal Decree-Law No. (7) of 2017.
Concluding the Deregistration Process:
As part of the VAT deregistration process, submitting the “final tax return” within 28 days of the effective deregistration date becomes mandatory. This final return covers the last tax period ending on the effective deregistration date. The registrant must settle any due tax and penalties along with the final tax return. Failure to adhere to this timeframe may result in penalties and potential delays in the deregistration process.
In summary, the deregistration from Value Added Tax (VAT) in the UAE becomes necessary under specific conditions, such as cessation of business operations or falling below turnover thresholds. Initiating the deregistration process involves timely application to the Federal Tax Authority (FTA). Additionally, businesses must fulfill their final return obligations and clear any outstanding tax liabilities to ensure a smooth transition during deregistration. Comprehending the criteria and procedural aspects of VAT deregistration stands crucial for businesses to fulfill their tax responsibilities effectively.
Abacus Tax & Accounting, your tax expert:
For guidance on VAT registration or deregistration, Abacus Tax & Accounting is here to support you. Taxation involves several intricacies, including meeting deadlines, which can divert attention from your business operations. To ensure compliance with tax laws and avoid penalties, consulting a tax accountant is highly recommended. Our team comprises expert accountants and tax professionals equipped to assist with various accounting or tax-related matters. Reach out to us for assistance today.