The UAE introduced VAT on January 1, 2018, with the standard rate set at 5%. A business must register for VAT if its taxable supplies and imports exceed AED 375,000 in a year. However, a business can also register for VAT on a voluntary basis. In this case, the taxable supplies and imports should exceed AED 187,500 per year. In some cases, the business can also deregister for VAT in the UAE. This article sheds light on the cases where a business can or must deregister for VAT in the UAE. But first, we will understand the basics of VAT.
What is a value-added tax (VAT)?
Value-added tax (VAT) is a type of tax that is imposed on the consumption of goods and services at each step of the supply chain. VAT applies to the final sale price of the goods or services, typically as a percentage. In the VAT system, businesses collect taxes on behalf of the government and ultimately remit them to the government. It is an indirect tax because the consumer ultimately pays it. The businesses are just mediators; the final burden of the VAT lies on the end consumer.
VAT is considered less volatile than income tax as it is based on consumption rather than income; consumption is more stable than income. Therefore, it is a stable source of income for governments in many countries around the world. Furthermore, in order to avoid double taxation, businesses can claim input VAT on their business purchases. Therefore, as a business, you must register for VAT in order to remit VAT to the government and to claim input VAT on purchases.
When shall you deregister for VAT in the UAE?
In the UAE, value-added tax (VAT) is mainly governed by Federal Decree-Law No. 8 of 2017 and its further amendments and related Executive Orders.
As per Article 21 of the VAT law, a business must deregister from VAT in the following two cases:
1) If the business stops providing taxable supplies, or, in other words, stops doing business,
2) If the turnover of the business in the preceding 12 months was less than AED 187,500. Furthermore, the business does not expect to surpass it in the coming 30 days.
As per Article 22 of the VAT law, a business may apply for VAT deregistration on a voluntary basis. This applies if the taxable supplies in the preceding 12 months were less than the mandatory threshold of AED 375,000. Furthermore, Article 23 stipulates that a business that is registered voluntarily initially cannot apply for deregistration in the first 12 months from the date of registration.
When must you apply to deregister for VAT?
Article 14 of the Executive Regulation of Federal Decree-Law No. 8 of 2017 on VAT mentions this issue. The tax registrant must apply to the authority within 20 business days of the occurrence of any mandatory deregistration conditions.
If the authority approves the application for deregistration, it then cancels the registration with effect from the last day of the tax year or if the authority determines any other date.
When can FTA deregister you from VAT?
The authority may also cancel the registration even if the business does apply for deregistration. This is the case where the authority (FTA) determines that the business does not fulfill the conditions of Article 21. The authority should inform the registrant of the date when the deregistration takes effect within 10 business days of the decision.
When a business applies for voluntary deregistration, the authority will cancel the VAT registration on the date as per the request by the business or registrant. However, if there is no preferred date by the requester, then the authority will cancel the registration from the date of application.
A business or a tax registrant will not be deregistered if there is any tax or penalty due under the VAT law or Federal Decree-Law No. (7) of 2017.
Final Tax Return:
As part of the deregistration process from VAT, you need to submit the “final tax return” within 28 days of the effective deregistration date. This is the return for the last tax period, which ends on the effective deregistration date. The registrant must pay any tax due and penalties along with the final tax return. In the event of a failure to submit the final return within the time limit, there will be a penalty and a potential delay in the deregistration process.
In conclusion, deregistration from Value Added Tax (VAT) in the UAE is necessary when a business meets certain conditions. This includes ceasing business operations or falling below the turnover thresholds. The process of deregistration involves applying to the Federal Tax Authority (FTA) within the specified timeframe. Businesses must submit a final return and settle any outstanding tax liabilities as part of the deregistration process. Adhering to the regulations and timelines is essential to ensuring a smooth transition during the deregistration process. Understanding the criteria and procedures for deregistering from VAT is crucial for businesses to fulfill their tax obligations effectively.
CZTA, your tax expert:
Whether it be the registration or deregistration of VAT, Creative Zone Tax Accounting can assist you. There are a lot of sensitive issues in taxation, for instance, meeting deadlines. Therefore, it can distract you from your business. In order to comply with tax laws and avoid penalties, experts recommend consulting a tax accountant. We have an expert team of accountants and tax experts to assist you in any accounting or tax matter. Contact us now.