The United Arab Emirates introduced Value Added Tax (VAT) on 1 January 2018. VAT is an indirect tax imposed on the consumption or use of goods and services at a standard rate of 5%. All the eligible businesses are required to register for VAT in UAE however, in some cases businesses apply for VAT Deregistration as well consult Vat registration UAE.
VAT Deregistration Process
In the UAE, if the taxable person stop making taxable supplies or are still making taxable supplies but the total value in the previous year is less than the Mandatory Registration Threshold, which is AED 375,000 then the person is must apply for VAT deregistration within 20 days of the event occurring. The taxable person can voluntarily deregister for VAT in UAE when it’s still making taxable supplies but the total value in the previous year is less than the Voluntary Registration Threshold, which is at AED 187,500 then the taxable person may apply for a voluntary deregistration. A business can also apply for VAT deregistration is the business is sold, transferred, or otherwise disposed of.
Penalty of VAT Deregistration in UAE
The UAE tax system is not a straightforward procedure, and therefore the businesses are required to ensure compliance with a set of eligibility criteria and conditions proposed by Fedral Tax Authority. Following are the penalties of VAT Deregistration in UAE:
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Late Deregistration Penalty
Failure in processing VAT deregistration within the given 20 business days set by the Fedral Tax Authority can lead to penalty of AED 1,000 and can exceed upto AED 10,000.
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Failure to Maintain Requested Records
It is essential for taxable person to submit all the relevant supporting documents to the regulatory authority. Delaying the process of documentation shall lead to a penalty of AED 10,000 for first offence and AED 50,000 for repeated violation of the tax regulations.
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Failure to Provide Records in Arabic
In accordance with the regulations of Fedral Tax Authority in the UAE, all the documents must be provided in Arabic. Failure to comply can lead to penalty of AED 50,000.
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Failure to Notify Fedral Tax Authority of Tax Record Amendments
If the taxable person fails to notify the authority of the tax record ammendments in the VAT deregistration process in the UAE, the first offense may lead to a penalty of AED 5,000. Whereas, the taxable person has made the same mistake a penalty of AED 15,000 shall be levied.
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Failure to Inform Fedral Tax Authority of Appointed Legal Representative
The VAT deregistration process in UAE requires the taxable person to inform the Fedral Tax Authority about the appointed legal representative within a specified timeframe. Failure to inform shall impose a penalty of AED 20,000 on the legal representative.
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Failure of Appointed Legal Representative to File Tax Returns
If the appointed legal representative fails to file the tax return, requested by the Fedral Tax Authority within a specified timeframe, a penalty with the amount of AED 1,000 will be charged for first offense on the appointed legal representative. Whereas, for a repeated offense for a period of twenty-four months AED 2000 shall be imposed.
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Submission of Incorrect Final Tax Return
The taxable person must ensure that all information submitted to the Fedral Tax Authority during the VAT deregistration process is correct. Submission of incorrect final tax return by the appointed legal representative can lead to serious imposition of penalties by the regulatory authority. Following are the penalties imposed due to the submission of incorrect final tax return:
- Fixed Penalty: The fixed penalty of AED 3,000 shall be imposed for first offense and AED 5,000 shall be imposed for repeated offense.
- Percentage-Based Penalty: Percentage-based penalty is based on unpaid amount to the Fedral Tax Authority because of an error. This penalty shall be 50 percent of the amount owed by the business for making a disclosure after review by the authority. However, for making voluntary disclosure after receiving the receipt of notification from the authority, 30 percent penalty is levied, and 5 percent penalty is imposed for voluntary disclosure before issuing any notification from the Fedral Tax Authority
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Failure to Facilitate Fedral Tax Authority Auditor’s Work or Review
If the taxable person is unable to facilitate the auditor work or review in the VAT deregistration process, penalty of AED 20,000 shall be imposed by Fedral Tax Authority.
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Non-Compliance with E-Tax Invoices and Credit Notes
If the taxable person provides incorrect document that does not comply with regulations that are relevant to the issuance of e-tax invoices and e-tax credit notes, a penalty of AED 5,000 for each incorrect and missing document shall be imposed.
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Failure to Issue Document for a Supply
If the taxable person is unable to to issue document for a supply, a penalty of AED 5,000 shall be imposed.
The process of VAT deregistration requires all the information to be accurate therefore, seeking professional advice can avoid the penalties imposed due to noncompliance and, thus, built strong business reputation of the company in the UAE.
