What Happens After VAT Deregistration? Legal and Financial Implications

VAT deregistration is not the end of a business’s tax responsibilities. Even after a company successfully deregisters for VAT in the UAE, it must still comply with legal and financial obligations set by the Federal Tax Authority (FTA). Failing to meet these post-deregistration requirements can result in penalties, compliance issues, and potential legal complications. In this blog, we explore the legal and financial implications of VAT deregistration, what businesses need to do after deregistering, and how they can ensure compliance to avoid penalties. ##Understanding VAT deregistration Obligations VAT deregistration means that a business is no longer registered under the UAE’s VAT system and is no longer required to:

• Charge VAT on sales.

• Submit VAT returns to the FTA.

• Collect VAT from customers.

However, certain financial and legal responsibilities remain even after deregistration, and businesses must take specific steps to avoid tax penalties and legal disputes.

Legal Implications of VAT deregistration

VAT deregistration does not exempt businesses from tax compliance. Businesses must fulfill the following legal requirements:

1. Maintain VAT Records for Five Years

• Businesses must retain VAT records for at least five years after deregistration.

• Records should include:

• VAT invoices (sales and purchases).

• VAT returns submitted to the FTA.

• Financial statements and transaction records.

Failure to maintain records can lead to FTA penalties if businesses are audited post-deregistration.

2. Address VAT Audit and Compliance Checks

• The FTA may audit deregistered businesses to ensure they met VAT obligations before deregistration.

• Businesses must cooperate with FTA audits and provide documentation if requested.

• Non-compliance during an audit can lead to penalties or reinstatement of VAT liabilities.

3. Restrictions on Issuing VAT Invoices

• After deregistration, businesses cannot issue VAT invoices or charge VAT to customers.

• Businesses that continue charging VAT without a valid Tax Registration Number (TRN) may face legal consequences.

• Companies should update their invoices to remove VAT details and inform customers about their deregistered status.

Financial Implications of VAT deregistration

1. Final VAT Return and Settling Outstanding Liabilities

• Businesses must file their final VAT return before deregistration is completed.

• Any outstanding VAT liabilities must be paid in full before the FTA approves the deregistration request.

• Unpaid VAT debts can delay deregistration and lead to additional fines.

2. VAT Refund Claims for Deregistered Businesses

• Businesses that overpaid VAT before deregistration may be eligible for a VAT refund.

• The refund claim must be submitted before deregistration is finalized.

• Failure to claim refunds before deregistration may result in the loss of any refundable VAT amounts.

3. Financial Reporting and Compliance

• Businesses must update their financial statements to reflect VAT deregistration.

• Accounting software should be updated to remove VAT calculations from transactions.

• Any future transactions should be recorded as VAT-exempt.

Key Steps Businesses Must Take After VAT deregistration

To ensure full compliance and avoid post-deregistration issues, businesses should take the following steps:

Step 1: Confirm VAT deregistration Approval

• The FTA notifies businesses once VAT deregistration is officially approved.

• Businesses should download the deregistration certificate from the FTA e-Services portal for record-keeping.

Step 2: Stop Charging VAT on Sales

• Update pricing structures and remove VAT charges from invoices.

• Notify customers and suppliers that the company is no longer registered for VAT.

Step 3: Maintain VAT Records for Five Years

• Keep all tax-related documents, invoices, and VAT returns as required by UAE tax laws.

• Store records securely to comply with potential FTA audits.

Step 4: Prepare for Potential VAT Audits

• Businesses may be randomly selected for VAT audits even after deregistration.

• Ensure all tax records are accurate and up to date.

Step 5: Monitor Future VAT Obligations

• If the business reaches the VAT registration threshold in the future, it must reapply for VAT registration.

• Ensure ongoing Financial Reporting aligns with FTA regulations.

How Young and Right Can Help

Managing post-VAT deregistration compliance can be challenging, but Young and Right provides expert assistance to ensure businesses meet all FTA requirements and avoid penalties. Our VAT experts guide businesses through every step, from record-keeping to VAT audits.

1. Post-Deregistration Compliance Assistance

• We help businesses understand their record-keeping obligations after deregistration.

• Our team provides guidance on updating financial statements and tax records.

• We assist in maintaining compliance with the FTA’s five-year VAT documentation requirements.

2. VAT Audit Support and Legal Compliance

• Our experts help businesses prepare for potential VAT audits even after deregistration.

• We review financial records to ensure all tax obligations have been met before deregistration.

• We assist businesses in handling FTA inquiries and compliance checks.

3. VAT refunds and Final Tax Settlements

*We assess VAT refund eligibility for deregistered businesses and handle refund applications.

• Our consultants ensure that businesses file their final VAT returns correctly.

• We assist in clearing outstanding VAT liabilities to ensure smooth deregistration.

4. Long-Term VAT Advisory Services

• Our team provides ongoing VAT advisory services for businesses that may need to re-register for VAT in the future.

• We monitor changes in VAT regulations to help businesses stay ahead of compliance updates.

• We assist companies in structuring their tax strategy to maximize financial efficiency.

By partnering with Young and Right, businesses receive comprehensive VAT support before, during, and after VAT deregistration, ensuring full compliance with UAE tax laws.

Conclusion

VAT deregistration does not eliminate a company’s tax responsibilities. Even after deregistering, businesses must:

• Maintain VAT records for five years.

• Prepare for potential VAT audits.

• File final VAT returns and settle outstanding liabilities.

Failure to meet post-deregistration obligations can result in penalties and legal consequences from the FTA. At Young and Right, we provide expert VAT consulting services, ensuring that businesses remain fully compliant even after VAT deregistration. From final VAT returns to audit preparation and tax refunds, our team handles every aspect, allowing businesses to focus on growth without tax-related worries. For hassle-free VAT deregistration and expert tax guidance, trust Young and Right—your reliable VAT advisory partner in the UAE.