In the UAE, VAT (Value Added Tax) and Corporate Tax (CT) deregistration are crucial aspects of a business’s compliance with local tax regulations. Proper deregistration is essential for businesses that no longer meet the criteria for VAT or CT obligations, ensuring that they avoid unnecessary tax burdens and penalties. Here's why VAT and Corporate Tax deregistration are important:

1. Avoiding Penalties for Non-Compliance

In the UAE, businesses are required to register for VAT if their taxable supplies exceed AED 187,500(Volutary) and AED 375,000 (Compulsory). Similarly, with the introduction of Corporate Tax (CT) in June 2023, all businesses registered in UAE are required to register and comply with the tax filing requirements. If a business no longer meets the criteria for registration, failing to deregister can result in penalties for non-compliance, including fines, interest charges, or even legal consequences.

Key Penalties for Non-Deregistration:

• Penalties for failing to deregister from VAT or CT when no longer required to be registered.
• Additional administrative costs related to filing returns and reports that are no longer relevant to the business’s current status.

2. Reducing Administrative Burden

Deregistering from VAT and CT can help simplify a business’s operations by reducing unnecessary administrative tasks, such as:

• Filing VAT returns
• Submitting corporate tax filings
• Maintaining accounting records for VAT and CT compliance

By removing these obligations, businesses can focus their resources on growth and other core activities instead of dealing with tax-related bureaucracy that no longer applies.

3. Ensuring Accurate Tax Reporting

If a business has outgrown or dropped below the thresholds for VAT or CT registration, continued registration could lead to inaccurate tax reporting. For instance, if a business is still VAT registered but no longer exceeds the registration threshold, it could inadvertently charge VAT on sales when it should not, or claim VAT on purchases that no longer apply. Deregistration ensures that tax reporting is aligned with the business’s actual taxable status.

4. Maintaining Good Standing with the Tax Authorities

The UAE Federal Tax Authority (FTA) requires businesses to maintain accurate and up-to-date records. Deregistering from VAT or CT is an important part of staying in compliance with tax regulations. It demonstrates that the business is proactive in fulfilling its legal obligations, preventing any risks related to audits or disputes with the authorities.

5. Recovering Overpaid VAT

If a business is no longer required to be VAT-registered but remains registered, it may continue to pay VAT on purchases when it should no longer be claiming it. By deregistering for VAT, businesses avoid paying VAT on non-eligible expenses. Moreover, if the business was previously VAT-registered and has overpaid VAT due to incorrect reporting, deregistration can help prevent further erroneous VAT payments.

6. Avoiding Double Taxation or Incorrect CT Filings

For businesses that are no longer subject to the  Corporate Tax rules, deregistration is vital to avoid continuing CT filings. Continuing to file for CT when it's not applicable may lead to double taxation or filing incorrect returns, which could invite penalties or audits.

7. Enhanced Cash Flow Management

By deregistering from VAT or CT, businesses can optimize their cash flow. For example, VAT deregistration may eliminate the need to remit VAT payments to the tax authority, reducing the outflow of cash that would otherwise be owed. This is particularly important for businesses that have stopped generating taxable revenue or those that no longer need to collect VAT.

When to apply for VAT Deregistration?

A business is required to notify the UAE Federal Tax Authority (FTA) by submitting a VAT deregistration application within 20 business days of any of the following events:

• The business ceases to make any taxable supplies.
• The business continues to make taxable supplies, but its total taxable turnover over the past 12 consecutive months falls below the voluntary VAT registration threshold of AED 187,500.
• The business may also choose to voluntarily deregister for VAT if its taxable turnover is above the voluntary threshold of AED 187,500 but below the mandatory threshold of AED 375,000.

 Process of VAT Deregistration 

The VAT deregistration process typically involves the following steps:

1. Submit a Deregistration Application:

   • Apply for VAT deregistration via the FTA e-Services portal, providing a valid reason for deregistration, the effective date, and any required supporting documents.

     2.Review and Tax Audit:

                  The FTA will review the application, if additional information is required, the FTA will notify the business. In some cases, the FTA may also initiate a tax audit                    to verify the business's VAT records.

     3.Final VAT Return:

• • After the FTA reviews, the application will change the status to Pre Approval.At this stage the business will be required to file its final VAT Return as per the FTA's instructions.

     4. Settle Outstanding Liabilities:

• • The business must settle any outstanding liabilities with the FTA. 

     5.Approval of the deregistration:

• • Once the all outstanding laibilities are paid FTA approves the deregistration application.The tax payer will be notified with the  deregistration status of TRN. 

Consequences of Late VAT Deregistration

If a business fails to submit a VAT deregistration application within 20 business days, the FTA will impose penalties. The penalty structure is as follows:

• Initial Late Penalty: AED 1,000 for missing the 20-business-day deadline.
• Ongoing Penalties: AED 1,000 for each additional month of delay.
• Maximum Penalty: The total penalty can accumulate up to a maximum of AED 10,000.

When to apply for Corporate Tax Deregistration?

An entity that has been issued a Tax Registration Number (TRN) is required to submit a Corporate Tax (CT) deregistration application to the UAE Federal Tax Authority (FTA) within the timeframe specified by the authority. The deregistration timeline and requirements are outlined below:

• For Natural Persons (Individuals):
  A natural person must submit the CT deregistration application within 3 months from the date the business or business activity ceases.

• For Juridical Persons (Entities):
  A juridical person must submit the CT deregistration application within 3 months from the date the entity ceases to exist, or in cases of dissolution, liquidation, or other legal changes that affect its status.

A taxable entity will not be deregistered from the CT regime unless the following conditions are met:

1. Filing of all required CT returns: This includes filing the final CT return for the period up to the cessation of business activities.
2. Payment of all tax dues: All outstanding tax liabilities must be settled.
3. Payment of any applicable administrative penalties: Any penalties imposed under the CT law must be paid.

Once the FTA approves the application, the deregistration will become effective from the date of cessation of business activities, or from another date specified by the FTA.

Process of Corporate Tax Deregistration

The Corporate Tax deregistration process in the UAE involves following steps:

1. Submit a Deregistration Application:

   • Apply for CT deregistration via the FTA e-Services portal, providing a valid reason for deregistration, the effective date, and any required supporting documents.

     2.Review and Tax Audit:

                  The FTA will review the application, if additional information is required, the FTA will notify the business. In some cases, the FTA may also initiate a tax audit  to verify the business's CT records.

     3.Final CT Return:

• • After the FTA reviews, the application will change the status to Pre Approval.At this stage the business will be required to file its final CT Return as per the FTA's instructions.

     4. Settle Outstanding Liabilities:

• • The business must settle any outstanding liabilities with the FTA. 

     5.Approval of the deregistration:

• • Once the all outstanding laibilities are paid FTA approves the deregistration application tax payer will be notified with the  deregistration status of TRN . 

Reasons for Corporate Tax Deregistration

There are several reasons why an entity may seek to deregister from the UAE's Corporate Tax regime:

1. Business Closure:
   When a company ceases operations—whether due to bankruptcy, insolvency, or a strategic decision to wind up—it may be eligible to deregister for corporate tax purposes.

2. Change in Legal Structure:
   If a company undergoes a significant change in its legal structure (e.g., merger, acquisition, or conversion to a different type of entity), it may be required to deregister for corporate tax.

3. Transfer of Ownership:
   If a company is sold or its ownership is transferred, the new owner may need to register the business for corporate tax. In such cases, the previous owner may be eligible for deregistration.

   Consequences of Late VAT Deregistration

   The penalty for late submission of the deregistration application under the Corporate Tax Law is AED 1,000 for the initial delay, with an additional AED 1,000 imposed for each subsequent month of delay, up to a maximum total penalty of AED 10,000.

The FTA typically processes VAT & CT deregistration applications within 20 business days, provided all documentation is complete. If more information is needed, the processing time may be longer.

How stay compliant?