Voluntary vs. Mandatory VAT Deregistration: Key Differences

VAT deregistration is a crucial aspect of Value Added Tax (VAT) compliance in the UAE. Businesses that no longer meet the necessary VAT registration requirements may either voluntarily deregister or be mandated by the Federal Tax Authority (FTA) to do so. Understanding the distinction between these two types of VAT deregistration is essential to ensuring compliance, avoiding penalties, and managing tax obligations efficiently. In this blog, we explore the key differences between voluntary and mandatory VAT deregistration, eligibility criteria, and procedural requirements to help businesses stay compliant with UAE VAT regulations.

Understanding VAT deregistration in the UAE

VAT deregistration refers to the process of canceling a company’s VAT registration with the FTA. Once deregistered, a business no longer needs to charge VAT, file VAT returns, or maintain VAT-related records. There are two primary types of VAT deregistration:

• Mandatory VAT deregistration – A business is required by law to deregister if it no longer meets the legal VAT registration requirements.

• Voluntary VAT deregistration – A business chooses to deregister for VAT based on specific eligibility criteria.

Each type of deregistration involves submitting an application to the FTA, clearing outstanding VAT liabilities, and ensuring compliance before final approval is granted.

Key Differences Between Voluntary and Mandatory VAT deregistration

Mandatory VAT deregistration applies when a business is legally required to cancel its VAT registration. This happens when a company permanently ceases operations, falls below the mandatory VAT registration threshold of AED 375,000, or stops making taxable supplies. In such cases, businesses must submit a deregistration request within 20 days of becoming eligible to avoid penalties. On the other hand, voluntary VAT deregistration is an option available to businesses that still meet VAT registration criteria but choose to deregister. This applies when a company’s annual taxable turnover falls below AED 375,000 but remains above AED 187,500, or when a business transitions from taxable to VAT-exempt activities. Unlike mandatory deregistration, voluntary applications do not have a strict deadline but must still be submitted through the FTA e-Services portal for approval. Businesses failing to apply for mandatory deregistration on time may face penalties of AED 10,000, whereas voluntary deregistration does not carry penalties if processed correctly. However, in both cases, VAT return filing obligations remain in place until deregistration is officially approved by the FTA.

When is VAT deregistration Mandatory?

A business must apply for VAT deregistration within 20 days if it meets any of the following conditions:

1. Business Ceases Operations

• If a company permanently stops trading, it must deregister for VAT immediately.

• This applies to sole proprietorships, partnerships, and corporations that have ceased taxable activities.

2. Annual Taxable Turnover Falls Below AED 375,000

• If a business’s taxable turnover drops below the mandatory VAT registration threshold of AED 375,000, it must deregister.

• Example: A company previously earning AED 400,000 in sales but now generating only AED 300,000 must apply for deregistration.

3. No More Taxable Supplies

• If a business stops selling taxable goods or services, it must deregister even if it continues other operations.

• Example: A company previously selling taxable goods switches to VAT-exempt financial services and must deregister.

When is VAT deregistration Voluntary?

Businesses can apply for voluntary VAT deregistration if they meet the following conditions:

1. Taxable Turnover Falls Below AED 375,000 But Above AED 187,500

• If a business’s taxable turnover is below AED 375,000 but still above AED 187,500, it can choose to deregister.

• Businesses anticipating future growth may opt to stay VAT registered.

2. Transition to VAT-Exempt Activities

• Businesses shifting from taxable to VAT-exempt activities may apply for voluntary VAT deregistration.

• Example: A VAT-registered trading company stops selling taxable goods and switches to VAT-exempt healthcare services.

3. Business Restructuring or Ownership Changes

• Companies undergoing mergers, acquisitions, or structural changes may apply for VAT deregistration.

• Example: If two VAT-registered companies merge into one entity, they may deregister their previous VAT accounts.

Steps to Apply for VAT deregistration in the UAE

1. Log in to the FTA Portal

• Access the FTA e-Services portal and navigate to the VAT deregistration section.

2. Submit the VAT deregistration Application

• Provide business details, including trade license information and tax registration number (TRN).

• Specify the reason for deregistration (mandatory or voluntary).

3. Settle Outstanding VAT Liabilities

• Submit the final VAT return and pay any pending VAT dues.

• FTA does not approve deregistration if there are unpaid VAT obligations.

4. Await FTA Approval

• The FTA reviews the application and may request additional information.

• If approved, the VAT registration will be officially canceled.

How Young and Right Can Help

Managing VAT deregistration can be complex, but Young and Right ensures a seamless and compliant process for businesses in the UAE. Our expert VAT consultants handle everything from eligibility assessments to final approvals, ensuring full compliance with FTA regulations.

1. Expert VAT deregistration Assistance

• Our specialists evaluate whether your business qualifies for mandatory or voluntary VAT deregistration.

• We guide you through the FTA application process, ensuring accuracy and compliance.

2. Settling VAT Liabilities and Filing Final Returns

• We assist businesses in filing final VAT returns and settling outstanding VAT dues.

• Our team ensures that all tax obligations are met before deregistration is processed.

3. Handling FTA Compliance and Documentation

• We liaise with the FTA on your behalf to track application progress.

• Our consultants ensure all necessary documents are submitted correctly to prevent delays.

4. Post-Deregistration Support

• We provide guidance on record-keeping and compliance obligations after VAT deregistration.

• Our experts help businesses transition smoothly and remain tax-compliant even after deregistration.

By partnering with Young and Right, businesses benefit from efficient VAT deregistration services, reduced risk of penalties, and expert advisory support throughout the process.

Conclusion

Understanding the differences between voluntary and mandatory VAT deregistration is essential for businesses to avoid unnecessary tax obligations, comply with UAE tax laws, and prevent penalties. Whether deregistering by choice or by law, businesses must ensure they meet FTA requirements and follow the correct process. At Young and Right, we provide specialized VAT deregistration services, guiding businesses through the process from eligibility assessment to final approval. Our expert team ensures a smooth, hassle-free deregistration experience. For trusted VAT consulting in the UAE, choose Young and Right—your expert partner in VAT Compliance and financial solutions.