Under Article 21 of the UAE VAT Law, a business must notify the FTA and submit a VAT deregistration application within 20 business days from the occurrence of any of the following events:
- The taxpayer ceases making taxable supplies and does not expect to make taxable supplies in the next 12 months.
- The taxable turnover during the last 12 months falls below AED 187,500 and is not expected to exceed this threshold in the next 30 days.
- The business is sold or transferred, requiring the previous owner to deregister and the new owner to apply for VAT registration if applicable.
- In the case of a merger or acquisition, one or more entities may need to deregister for VAT.
- The legal structure of the business changes, affecting its VAT registration status.
General Process for VAT Deregistration
Taxpayers must submit the VAT deregistration within 20 business days from the occurrence of the event that requires deregistration.
- Submit deregistration - Taxpayer seeking to deregister from VAT must log into their account on the FTA’s e-Services portal. They will need to submit an online application for VAT deregistration, providing all required details.
- Provide Supporting Documents – Applicants may need to submit additional documentation to support the VAT deregistration request. These documents may include:
- Evidence of cessation of business activities
- Board resolutions approving deregistration
- Financial records showing a decline in taxable turnover
- Other relevant documents requested by the FTA
- Review by FTA - The FTA will review the application and supporting documents. If the application meets the requirements, the FTA will approve the VAT deregistration.
- Final Return – After FTA has reviewed the application, they might open a final VAT return. The final tax return represents the last tax period for which the taxpayer was registered with the FTA. It should be filed, and any payable tax should be settled within 28 days from the effective date of de-registration. Failure to adhere to the deadlines may result in penalties and delays in completing the deregistration process.
- Filing During the Deregistration Process - The VAT deregistration process may take several months. During this period, businesses must continue filing VAT returns (including zero returns if applicable) for each tax period until deregistration is officially approved. This helps avoid non-filing penalties.
- Completion of Deregistration - Once the application is approved, the FTA will issue a VAT Deregistration Certificate, confirming that the business is no longer registered for VAT. At this stage, the business will no longer be required to charge VAT or file VAT returns.
Post-Deregistration Responsibilities
Even after VAT deregistration is completed, businesses must retain their VAT records for a period of five years, as required under UAE tax regulations. Additionally, businesses must ensure that any outstanding VAT liabilities or credits are settled before the deregistration process is finalized.
Penalty
If a VAT-registered business fails to submit a deregistration application within 20 business days of the event requiring deregistration, the following penalties may apply:
- AED 1,000 initial penalty.
- AED 1,000 for each subsequent month of delay.
- Up to a maximum penalty of AED 10,000.
Impact of VAT Deregistration
- No Longer Charging VAT - After VAT deregistration, the business will not be expected to make VAT charges on the supplies it makes as it will no longer hold a VAT registration.
- Compliance and Reporting - After deregistration, the business will not be required to submit periodic VAT returns or adhere to the provisions of the VAT Act on recordkeeping. This can minimize the amount of paperwork and the related costs of meeting VAT obligations.
- Reclaiming Input VAT - Among the consequences, it is worth mentioning that VAT deregistered businesses cannot claim input VAT on materials they buy.
Potential Resubmission of VAT Registration
If a business’s circumstances change in the future and its taxable turnover again exceeds the VAT registration threshold, it will be required to reapply for VAT registration. Re-registration may affect operational processes and accounting systems, which is why businesses should carefully assess their VAT position before deregistering.
Seeking professional advice on VAT compliance and deregistration requirements in the UAE is essential to ensure a smooth transition and avoid costly mistakes. Working with experienced VAT consultants and firms such as Excellence helps businesses navigate the VAT deregistration process efficiently while maintaining full compliance with UAE VAT regulations.
