When Should a Business Apply for VAT Deregistration in the UAE?

Introduction

In the UAE, businesses registered for Value Added Tax (VAT) must comply with Federal Tax Authority (FTA) regulations, including knowing when to deregister from VAT. VAT deregistration is required when a company no longer meets the VAT registration criteria or undergoes structural or financial changes that affect its tax obligations. Failing to apply for VAT deregistration when required can result in penalties, compliance risks, and unnecessary VAT liabilities. In this blog, we will discuss when businesses should apply for VAT deregistration, the conditions that require deregistration, and how to ensure a smooth process with the FTA.

What is VAT deregistration?

VAT deregistration is the process by which a business cancels its VAT registration with the Federal Tax Authority (FTA). Once deregistered, the business is no longer required to charge VAT, file VAT returns, or maintain VAT records. VAT deregistration can be either mandatory or voluntary, depending on the company’s financial status and taxable turnover.

• Mandatory VAT deregistration – Required when a business no longer meets the VAT registration threshold or ceases operations.

• Voluntary VAT deregistration – Optional when taxable supplies fall below a certain limit.

When is VAT deregistration Mandatory?

A business must apply for VAT deregistration within 20 days of becoming eligible under the following conditions:

1. Business Ceases Operations

• If a business permanently closes, it must deregister for VAT immediately.

• This applies to sole proprietorships, partnerships, and corporations that stop all taxable activities.

2. Taxable Turnover Falls Below the Mandatory VAT Threshold

• VAT deregistration is required if a business's annual taxable turnover falls below AED 375,000.

• This means that the company no longer qualifies for mandatory VAT registration and must deregister.

3. No More Taxable Supplies

• If a business stops making taxable supplies, even if it is still operating, it must deregister for VAT.

• Example: A retail company that shifts to non-taxable consulting services must cancel its VAT registration.

When is VAT deregistration Voluntary?

A business may choose to apply for VAT deregistration if it meets the following conditions:

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

• If taxable turnover drops below the mandatory threshold but remains above AED 187,500, the business can opt for deregistration.

• However, businesses may choose to stay registered if they anticipate an increase in taxable supplies.

2. Business Transitions to VAT-Exempt Activities

• Businesses that switch from taxable to VAT-exempt services or goods may apply for deregistration.

• Example: A company that previously sold taxable goods but now deals in financial services (exempt from VAT) can opt for deregistration.

3. Structural or Ownership Changes

• Companies that merge, restructure, or change ownership may need to apply for VAT deregistration and re-register under a new tax structure.

• Example: If two VAT-registered companies merge into a single entity, they may need to deregister the previous VAT accounts.

What Happens If a Business Fails to Deregister on Time?

Failure to deregister within 20 days of meeting the deregistration criteria can result in FTA penalties, including:

• AED 10,000 fine for late VAT deregistration.

• Additional penalties for non-compliance, such as failure to file final VAT returns.

• Continuous VAT obligations, requiring businesses to file returns and pay VAT even if they no longer need to be registered.

How to Apply for VAT deregistration in the UAE

Businesses must follow these steps to deregister from VAT with the FTA:

Step 1: Log in to the FTA Portal

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

Step 2: Complete the VAT deregistration Application

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

• State the reason for VAT deregistration (e.g., closure, turnover drop, or structural change).

Step 3: File Final VAT Returns and Settle Outstanding Liabilities

• Submit the last VAT return covering the final taxable period.

• Pay any pending VAT liabilities before submitting the deregistration request.

Step 4: Await FTA Approval

• The FTA will review the application and may request additional documents.

• If approved, the business will receive confirmation of VAT deregistration.

Common VAT deregistration Challenges

1. Unsettled VAT Liabilities

• Businesses cannot deregister if they have outstanding VAT payments or unpaid penalties.

• Solution: Ensure all VAT dues are cleared before applying for deregistration.

2. Errors in the Deregistration Application

• Incorrect information can delay processing or lead to application rejection.

• Solution: Verify all business details, tax records, and supporting documents before submission.

3. Delays in FTA Processing

• Some businesses experience long waiting times for deregistration approvals.

• Solution: Track the status of the application regularly and ensure all required documents are submitted correctly.

How Young and Right Can Help

At Young and Right, we provide specialized VAT deregistration services to help businesses comply with UAE tax laws, avoid penalties, and ensure a smooth deregistration process.

1. VAT deregistration Eligibility Assessment

• We evaluate your business turnover, taxable activities, and financial status to determine if you qualify for VAT deregistration.

• Our tax experts ensure that you meet all FTA deregistration criteria.

2. VAT deregistration Application Assistance

• We handle the entire deregistration process, from application submission to final FTA approval.

• Our team ensures that all business details and supporting documents are accurate and compliant with FTA requirements.

3. Settling VAT Liabilities and Final Tax Filings

• We help businesses file their last VAT returns and clear any outstanding VAT payments.

• Our VAT specialists provide detailed tax assessments to ensure all financial obligations are met.

4. FTA Liaison and Compliance Support

• We communicate directly with the FTA to track the progress of your VAT deregistration request.

• Our team resolves any compliance issues to prevent application rejections or penalties.

5. Post-Deregistration Advisory Services

• We provide ongoing VAT guidance for businesses that have deregistered.

• Our tax consultants offer business restructuring support, ensuring compliance with future tax regulations.

With Young and Right, businesses can successfully deregister for VAT while remaining compliant with UAE tax laws.

Conclusion

VAT deregistration is mandatory when businesses cease operations, drop below the VAT threshold, or stop taxable activities. Companies that fail to deregister on time risk penalties, compliance issues, and continued VAT obligations. By understanding when to apply for VAT deregistration and following the FTA’s proper deregistration procedures, businesses can streamline the process and avoid financial risks. At Young and Right, we provide end-to-end VAT deregistration services, helping businesses navigate the FTA process efficiently. From eligibility assessments to final approvals, our expert team ensures hassle-free VAT deregistration. For trusted VAT consulting in the UAE, choose Young and Right—your expert partner in VAT Compliance and financial solutions.