Businesses operating in the UAE and registered for VAT must follow specific compliance requirements set by the Federal Tax Authority (FTA).
However, when certain conditions are met, businesses can deregister from VAT.
In this guide, we’ll explore the VAT deregistration threshold, VAT deregistration requirements, VAT deregistration process, and penalties for non-compliance.
What is VAT Deregistration?
VAT deregistration is the process by which a business cancels its VAT registration with the FTA.
This typically happens when a business no longer needs to be registered for VAT, either because it has ceased taxable activities or its revenue falls below the mandatory threshold.
Deregistering from VAT helps businesses reduce compliance burdens, such as filing VAT returns and maintaining VAT records, once they’re no longer obligated to charge or claim VAT.
VAT Deregistration Threshold
The FTA mandates deregistration in two scenarios:
Mandatory VAT Deregistration:
When the taxable supplies made by a business fall below AED 375,000 (the mandatory registration threshold).
When a business ceases all taxable activities and does not expect to resume them in the next 12 months.
Voluntary VAT Deregistration:
When the taxable supplies or expenses fall below AED 187,500 (the voluntary registration threshold).
It’s crucial to assess your business’s taxable supplies to determine whether you meet the VAT deregistration threshold.
VAT Deregistration Requirements
Before initiating the deregistration process, businesses must fulfill these requirements:
-
- Clear All VAT Liabilities: Any outstanding VAT liabilities or penalties must be cleared.
-
- File the Final VAT Return: Submit the last VAT return, including all taxable supplies and input tax.
-
- Maintain Records: Keep business records for a minimum of five years, even after deregistration.
Failing to meet these requirements may delay the process or lead to penalties.
VAT Deregistration Process
Deregistering from VAT in the UAE involves a few essential steps:
Log in to the FTA Portal: Access your business account on the FTA’s e-Services portal.
Submit the VAT Deregistration Application: Complete the application form, providing the reasons for deregistration (e.g., cessation of taxable activities).
Clear Outstanding Liabilities: Settle any unpaid VAT, penalties, or fees.
Await FTA Approval: Once the FTA reviews and approves the application, your VAT deregistration will be processed.
Key Deadlines
Businesses must file the VAT deregistration application within 20 business days of becoming eligible.
Delays in filing can result in significant penalties.
Consequences of VAT Deregistration
After successful deregistration:
-
- No VAT Charges: Businesses can no longer charge VAT on their goods or services.
-
- No Input Tax Recovery: You cannot claim input VAT on purchases.
-
- Simplified Compliance: The burden of maintaining VAT records and filing VAT returns is removed.
However, businesses must still retain historical VAT records for at least five years, as required by the FTA.
Penalties for Non-Compliance
Failing to comply with VAT deregistration requirements or deadlines can lead to penalties, such as:
-
- Late Deregistration Penalty: AED 10,000 for not applying within the stipulated timeframe.
-
- Filing Errors: Penalties ranging from AED 3,000 to AED 5,000 for incorrect VAT returns.
-
- Unpaid Liabilities: Accumulation of interest on unpaid VAT liabilities.
To avoid these penalties, it’s essential to stay compliant with FTA regulations and deadlines.
Common Challenges in VAT Deregistration
Deregistering from VAT can sometimes be challenging due to:
-
- Pending VAT Liabilities: Outstanding payments or penalties may block the process.
-
- Incorrect Applications: Errors in the application form can result in rejection.
-
- Delays in FTA Approval: Missing documentation or incorrect submissions can prolong the process.
Pro Tip:
To ensure a smooth process, consult tax experts like Pro Tax Accountant, who can guide you through the deregistration process and help resolve potential challenges.
FAQs About VAT Deregistration
Q: When is VAT deregistration mandatory?
A: VAT deregistration is mandatory when a business ceases taxable activities or its taxable supplies fall below AED 375,000.
Q: How long does VAT deregistration take?
A: The FTA typically processes applications within 20 business days, provided all requirements are met.
Q: Can I deregister voluntarily?
A: Yes, if your taxable supplies fall below AED 187,500, you can opt for voluntary deregistration.
Q: What happens if I miss the deregistration deadline?
A: Missing the deadline can result in a penalty of AED 10,000.
Conclusion
VAT deregistration is a critical step for businesses in the UAE that no longer meet the VAT registration threshold.
By understanding the VAT deregistration requirements, following the correct VAT deregistration process, and avoiding penalties, businesses can smoothly transition out of VAT compliance obligations.
If you need expert assistance with VAT deregistration or other tax-related matters, contact Pro Tax Accountant.
Our team of tax professionals ensures seamless compliance with UAE regulations, saving you time and money.
