Within the ever-evolving business landscape in the United Arab Emirates, businesses often fail to meet expectations and decide to close their operations. Additionally, this decision makes them unable to stay VAT registered and opt for cancellation to avoid any legal troubles in the future. To approach this task with confidence, you require the correct guide to VAT Deregistration in UAE that can help you close the VAT account in a legal way and stay fully compliant.
Understanding VAT deregistration in the UAE
VAT deregistration is the formal process of cancelling VAT registration with the Federal Tax Authority when the business shuts down operations, or its annual turnover falls below the mandatory VAT registration threshold. In such cases, businesses must undergo VAT deregistration to relieve themselves of tax obligations if they no longer need to remain registered for VAT.
When to apply for VAT Deregistration in UAE?
Businesses in the UAE can apply for VAT deregistration in the following situations:-
- When Annual Turnover Falls Below the threshold – When the annual taxable turnover of the business falls below the mandatory VAT registration limit in 12 months, it doesn’t need to stay registered, charge VAT, and file returns.
- Permanent Closure of Business – When a business decides to permanently close or end all its operations, sells all its assets, or is legally dissolved, it needs to complete the deregistration procedure.
- No Taxable Supplies – When a business decides to no longer deal with taxable goods or services, it doesn’t need to stay VAT registered or charge VAT, and hence must deregister with the FTA to maintain compliance with the rules.
- Major Change in Business Structure – When a business changes its nature or structure, such as stops making taxable supplies and services or switches to exempt or zero-rated supplies, it needs to undergo VAT deregistration and reapply for a new business setup.
- Falling Below Voluntary Registration Limit – When companies voluntarily registered for VAT fall below their annual turnover of AED 187,500, they need to deregister to avoid unnecessary tax filings.
Guide to VAT Deregistration in UAE: Types of Deregistration
VAT deregistration in the UAE has two types. Businesses must choose the right type depending on their situation or reason for deregistration.
1. Mandatory Deregistration
Mandatory deregistration requires businesses to complete the process within a given time to stay compliant with tax laws and avoid heavy fines. They must apply for mandatory deregistration in the following situations:
- Permanently closing or liquidating the company.
- Starts dealing with VAT-exempt goods or services.
- Stops making taxable goods and doesn’t expect to make any for the next 12 months.
- The taxable revenue has fallen below AED 375,000 over the last 12 months.
VAT registration becomes invalid in all these situations, and therefore, businesses must go for deregistration.
2. Voluntary Deregistration
Under this type, businesses can choose to cancel the VAT while continuing with their operations in the UAE. They choose voluntary deregistration when VAT becomes an unnecessary burden and a costly expense. They can apply for it in the following circumstances:
- When the taxable revenue falls below the mandatory limit or stays above the voluntary limit over the last 12 months.
- Plans to stop making large taxable supplies for the next 12 months.
- Changes the business model.
It is to be noted that voluntarily registered companies need to wait a minimum of 12 months to deregister.
Documents required: Guide to VAT Deregistration in UAE
The process for VAT Deregistration in Dubai involves certain paperwork requirements to avoid any legal trouble in the future.
- Valid trade license confirming the business details and its current operational status.
- Original VAT Registration Certificate issued by the FTA.
- Final VAT Return as proof of submission of the last VAT return and settlement of all pending dues.
- Recent bank statements supporting the reason for deregistration.
- Audited financial statements or profit and loss reports showing the annual revenue and confirming that it is below the VAT limit.
Process for VAT Deregistration in Dubai: Steps to apply
Businesses need to follow some simple steps to cancel their VAT registration with the FTA without delays. Here’s a complete guide to VAT Deregistration in UAE with all the necessary steps:-
Step 1. Log In to the FTA Portal
Access the FTA e-services portal with your registered login details. Make sure the login details are correct to avoid any issues.
Step 2. Choose the VAT Deregistration Option
Go to the VAT deregistration section and choose the reason for deregistration, such as permanent business closure, shifting to exempt supplies, or low turnover.
Step 3. Fill in Business Information
Enter all the details, including the TRN, trade license number, the proposed deregistration date, and more. Make sure all the details match their previous VAT records.
Step 4. Upload Required Documents
Prepare all the necessary documents, including VAT returns, financial statements, and others, and attach them to the application. To avoid any delay in the verification step, make sure to submit complete and accurate documents.
Step 5. Submit Your Application
Once all the details and documents are verified, submit the deregistration request. Receive a reference number that you can use to track your request status.
Step 6. FTA Review & Follow-up
The tax authority will review your application and ask for further information if required. To secure approval without any disruptions, be certain to respond promptly to their request.
Step 7. Settle Pending VAT Liabilities
Before getting into the deregistration process, make sure to clear all pending dues and unpaid liabilities to get final approval from the authority.
Step 8. Get Deregistration Confirmation
Upon approval, the authority will issue a VAT deregistration certificate, confirming that the business is no longer registered with the FTA.
Post VAT Deregistration process
Upon successful cancellation of VAT registration in the UAE, businesses must continue to follow the post-deregistration obligations to ensure compliance with the FTA rules and stay safe from future issues.
- Maintain Records for Five Years: Keep all VAT-related records, including invoices, filed VAT returns, proof of payments, and others, for at least five years, for future audits or verification by the FTA.
- Remove the VAT on Sales: After deregistration, businesses must no longer collect VAT on sales to prevent any compliance issues.
- Track the Status of VAT Refunds or Claims: Businesses can claim pending VAT refunds from previous tax periods and make sure the refund requests are filed before the completion of the deregistration process.
- Residual Asset VAT Management: Businesses must calculate VAT on unsold stock or assets that can be later sold or reused, such as any equipment and property.
- Re-register for VAT if required: If the turnover exceeds the mandatory VAT registration limit, businesses must re-register through the FTA portal by following the same steps to ensure compliance with the specified regulations.
- Update Business Documents & Processes: Businesses are required to update invoices, accounting software, and official processes by removing VAT details, VAT-inclusive pricing, and other details from their website.
- Follow Additional Rules: Businesses must continue complying with some tax and business laws, like proper bookkeeping and keeping vigilant of tax updates.
Guide to VAT Deregistration in UAE: Common Challenges
Although the process for VAT Deregistration in Dubai is clear and well-defined, businesses often tend to make mistakes that can slow things down or make the procedure more complicated. Here are some of the most common challenges faced during VAT deregistration:
- Failing to meet the deadline for VAT deregistration within 20 business days of meeting the condition for deregistration leads to a hefty penalty and many other unnecessary legal issues.
- Failing to settle the unpaid VAT dues and fines makes it difficult to secure the approval of the FTA for deregistration.
- Missing and incorrect documents can delay deregistration.
- Failing to maintain VAT records for at least five years and follow additional tax rules can cause serious compliance issues in the future.
Benefits of VAT Deregistration in the UAE
The legal procedure of VAT deregistration not only reduces the compliance burden but also offers several other benefits:
- Less Administrative Work – Abolishes the need to file regular returns and maintain VAT records, lessening the paperwork load on the team and the frequent need to deal with the FTA.
- Simpler Accounting Process – Eliminates the need to track VAT on every transaction and adjust entries for tax calculations, helping companies with smoother accounting and faster financial reporting.
- Better Cash Flow Management – Eradicates the need to collect VAT on sales, saving more funds for operational use and improving cash flow for firms with limited budgets.
- Competitive Pricing Advantage – Makes the products or services more affordable, helping build the client base and boost sales.
- Avoidance of Penalties & Legal Issues – Keeps the business compliant with UAE tax laws without worrying about fines for late applications or charging VAT on sales.
Streamline your VAT Deregistration with us
We understand the challenges of VAT deregistration and, therefore, can help you handle this complex process smoothly by meeting all requirements. From confirming your eligibility for deregistration to submitting the deregistration application, we manage the entire process with ease, ensuring quick approval and full compliance.
Connect with our professional tax consultants and get full support with your VAT deregistration process.
