UAE clarifies when companies must de-register from VAT

Businesses affected by the regulation should remove themselves from the system or risk incurring a fine

The extension applies both to companies that file tax returns monthly and quarterly. Alamy Stock Photo

Companies registered to pay value added tax in the UAE must apply to remove themselves from the system if they stop operating or anticipate a drop in the value of their taxable sales to below Dh187,500 per annum, the government said on Saturday.

Failure to de-register could elicit a fine from the UAE Federal Tax Authority, the official body that administers the tax said in a statement.

“Registrants will not be de-registered unless they have paid all due taxes and administrative penalties and filed required tax returns for the period in which they were registered, as stipulated under tax legislation,” the FTA’s statement added.

The UAE, together with Saudi Arabia, introduced a 5 per cent VAT on goods and services in January 2018, as part of plans to increase non-oil revenues and create a more transparent business environment.

Any company generating taxable sales of above the threshold of Dh375,000 per annum must register themselves on the government’s VAT system and pay all of the tax for which they are liable each year, while companies with taxable sales above Dh187,500 per annum can voluntarily register themselves to pay VAT.

However, if a company anticipates it will experience a drop in total annual sales to below that minimum threshold over a 30-day period ahead, it must de-register from VAT liability, the FTA said. The application must be submitted within 20 working days of the occurrence of that drop in sales, otherwise the company could be subject to a fine.

“Failing to submit the de-registration application within the period…will lead to the imposition of administrative penalties as stipulated in the VAT tax legislation,” the statement said.

The UAE tax system relies on voluntary compliance by taxable businesses with the processes of registration, filing tax returns, paying tax owed and de-registering. These processes are free of charge, via the FTA’s e-services online portal.

The introduction of VAT in the UAE and Saudi Arabia had a positive impact on economic growth and development in the GCC in its year of implementation in 2018, a report from the Federation of GCC Chambers said in December.

Bahrain is preparing to roll out the 5 per cent levy from 2019, in line with the GCC-wide VAT agreement signed in 2017, but it has not said exactly when.

Once implemented, though, a GCC-wide VAT could generate revenues of between 1.5 per cent and 3 per cent of the six-country economic bloc’s total non-oil gross domestic product from 2019, the Federation report said, citing figures from the International Monetary Fund.