VAT in UAE: A hypermarket bill in Dubai displays VAT addition. File picture used for illustrative purposes. Image Credit: Ahmed Ramzan/Gulf News


A weekly column where readers get their queries answered on Value Added Tax (VAT), Economic Substance Regulations (ESR), Customs and other GCC taxes. This week, queries relating to VAT Deregistration are answered.

Question #1: My company (let’s call it ‘Company M’) is already registered for VAT. The total revenue earned by ‘Company M’ in 2019 calendar year was Dh800,000. However, the revenue for 2020 calendar year is expected to be below Dh150,000. Can ‘Company M’ continue with its VAT registration for the year 2020?

What is VAT deregistration?
VAT deregistration is a process where the registered companies are required to cancel their VAT registration with the FTA. The deregistration process becomes mandatory when the taxable company ceases its operations, or the requirement of VAT registration is no longer met.

A company must notify Federal Tax Authority (FTA) for deregistration in the following two scenarios:

Scenario 1: If such company ceases to make taxable supplies; (or)

Scenario 2: If the taxable supplies of such company in the last 12 calendar months is less than Dh187,500, and the value of taxable supplies or taxable expenses will not exceed Dh187,500 in the upcoming 30-day period.

If the value of taxable supplies of ‘Company M’ from November 1, 2019 to October 31, 2020 was less than Dh187,500, it must notify FTA for deregistration. The notification to FTA for deregistration must be made within 20 business days from the end of the month failing which administrative penalties will apply.

What are the penalties for failure to notify of the requirement to deregister?
A person may be subject to an administrative penalty of Dh10,000, if they fail to deregister within the specified timeframes.

Question #2: We are a corporate group consisting of nine companies which are registered as a Tax Group. One of the group members’ (let’s call it ‘Company W’) turnover is now considered ‘zero’ as its operations has been merged with another group member. However, we are continuing with the member’s trade license for other business operations. Should we deregister the said member from VAT?

What is a ‘VAT Tax Group’ or ‘Tax Group’?
Also known as group registration, under this mechanism, more than one company under single common control can get a single VAT registration as a VAT Tax Group.

The VAT registration requirements for a Tax Group are satisfied where either one prospective member alone satisfies the relevant registration requirements; or if taken together, the total value of supplies made by (or expenses, which are subject to VAT), incurred by the prospective members satisfy the relevant registration requirements.

As each member is not required to individually meet the VAT registration threshold, it is inferred that ‘Company W’ need not apply for deregistration as it remains eligible to be a member of the Tax Group. However, it is recommended to consult with FTA to discuss further details.

Did you know?
If a member of the Tax Group no longer meets the criteria for tax grouping, the representative member must inform the FTA within 20 business days of the member ceasing to be eligible.

Question #3: My Company (let’s call it ‘Company S’) registered for VAT on January 1, 2018. However, I have noticed that the annual turnover of the company does not exceed an average of Dh300,000? Is it possible to deregister the company from VAT?

Yes, a company may apply for voluntary deregistration if the total value of their taxable supplies in the previous 12 months was less than Dh375,000. ‘Company S’ is eligible to apply for VAT deregistration.

Did you know?
If a person has voluntarily registered for VAT, voluntary deregistration will not be possible until 12 months have elapsed since the date of registration.

Question #4: What are the consequences of VAT deregistration?

Once deregistered, a person cannot charge VAT on its supplies of goods or services. Further, the person cannot recover input credit of the VAT paid on its purchases of goods or services. The person, being an unregistered person, would also be required to pay import VAT at the time of import of goods into the UAE.

Further, the goods and services that the person owns at the date of tax deregistration will be treated as a deemed supply on which output VAT would be payable.

Did you know?
The status of the Deregistration application progresses through the following stages (i) Pending, (ii) Submitted, (iii) Pending, (iv) Pre-approved and (v) De-registered

Selected queries on a particular topic are being answered by a team from AskPankaj Tax Consultants. You can send your tax queries on YourMoney@gulfnews.com. The answers are for general guidance and does not constitute as legal advice.

Pankaj S. Jain

Pankaj S. Jain, is the Managing Director of AskPankaj Tax Consultants and Tax Agency