UAE corporate tax implications for businesses that shut down

If you own a company that is three months old or less, then you should have an account with the Federal Tax Authority. AP

You are shuttering your business. A liquidator from the approved list for your trade licence issuing authority has submitted its report. All is in good order and you have promised the authorities and your liquidator that you will deregister the entity from all mandated regimes.

This is highlighted in their final contented submission allowing the entity to be formally closed.

Today, we’re going to look specifically at where the Federal Tax Authority portal comes into this process.

If you already own a company that is three months old or less, then you should have an account with the FTA, username and password, and know your way around it. If you do not, get help.

The first penalty, Dh10,000, comes at the end of that period if you have not submitted the application for your first tax regime registration.

That the waiving of this penalty has just been announced, under certain circumstances, is no excuse to delay getting the process completed. I imagine a dim view would be taken of those deemed to have taken a laissez-faire approach given the helpful new available remedy.

The UAE's corporate tax law explained: Business Extra

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In our scenario, the entity has applied to deregister for VAT. The time involved can sometimes outlive your company. You can expect an audit of a couple of periodic submissions as part of the close-out.

Until you are in the final phase, you will continue to submit periodic returns. Once you have ceased trading, these should be zero value returns. Anything else will cause reasonable questions to be asked, delaying matters.

Once all is in order, you will have one final return to submit. Failure to submit it will mean a penalty.

Until that last submission is made and the penalty settled, deregistration will not have happened.

Let us begin adding twists to this tale. Imagine that all the above was successfully completed by December 2022. This date is not arbitrarily chosen. It is before the advent of corporate tax.

Be prepared to be contacted and asked why the entity, now expired, has not been registered for corporate tax. It is not unfair to wonder how having been successfully through the VAT deregistration process, including the uploading of all the closure confirmation documents, that the same portal is wondering why another tax regime has not been applied for?

Gather the documentation and respond formally. Do highlight that the information provided has already been supplied.

Why does the FTA portal interact with zombie entities? I have been contacted by clients who had thought that all requirements had been met and am asked what it is we did not do?

I imagine it is teething issues within their enterprise software system. Remember that the portal manages VAT, corporate tax, excise and other regimes. The current platform is a second iteration and is only a few years old.

Another twist. I have seen entities that have multiple profiles on the portal. This is generally due to failed efforts to register for a regulatory regime. Having found somebody proficient who successfully completes an application, the original attempt or attempts are forgotten. With different administrative user accounts, they can attract regulator attention due to outstanding requests for additional information that have been left unanswered.

A final twist, one that is more common than you might imagine, happens when you upgrade your sole establishment licence to a limited liability company.

The trading name usually stays the same, as does the trade licence number and the trade licence issuing authority.

Consider that the original entity is VAT registered. Then the entity evolves and attempts to register for corporate tax.

As a result of shared fields on the portal, the base case for the entity is that of a simple juridical structure. A sole trader. On applying for corporate tax, there is information that must be provided for an LLC, but cannot be done since the portal is unable to square the different entity types.

The solution? Open a second account and register there. But now there are two accounts. One for VAT and one for corporate tax. Is this compliant? I used to think so. Now, I am unsure.

How do you draw the curtain down permanently on an entity that has existed in any form on the portal? There is no easy answer.