UAE VAT Deregistration [Criteria & Disadvantages]

UAE VAT Deregistration

The VAT UAE Laws provide registered taxpayers (including voluntary registrants) and companies with provisions for VAT deregistration too. An entity can apply for deregistration if the annual turnover did not exceed Dh187,500 ($51,000) 13 months after registering with the FTA.

The VAT UAE Deregistration Criteria

Under the VAT Decree Law and Executive Regulations, VAT Registered Taxpayers and companies must fulfill the below criteria to put into motion the VAT Deregistration:

  • Total Taxable Supplies within 12 months from the date of VAT registration do not exceed Dh187,500.
  • Anticipated taxable supplies for the succeeding 30 Day period starting from the end of tax year will also not make cumulative taxable supplies or expense cross the Dh187,500 threshold.

If the above two criteria hold true for a particular entity, taxpayer or company, it can apply for deregistration.

Note: Failure to do will attract an administrative VAT deregistration penalty of Dh10,000.

The Tax Year in UAE

Tax Year varies with respect to the date of application for Tax Registration. To cite an example, if the applicant applied for voluntary registration on May 1, 2018, his/her tax year will end on April 1, 2019.

In the above case if the registrant has not made supplies equal to Dh187,500 for the tax year. And has also assessed his supplies and expenses for the next thirty days (ending on May 30) to be confirmed that the, an application for deregistration can be made before June 20.

Reportedly, more than a few thousand companies in UAE will file for deregistration owing to liquidation or any of the above-mentioned criteria. Accordingly, a number of companies will apply for registrations as they meet the registration criteria for the first time this year.

VAT Deregistration Disadvantages

One of the primary disadvantages would be the inability of businesses to make VAT input claims on supplies made by them. This will make their supply dearer by a considerable fraction which may force VAT-registered customers to look for other alternative suppliers.

Moreover, non-registered businesses would be required to pay VAT against inventory and assets procured while they were registered under VAT. This would be applicable irrespective of any VAT Claims on them.

All such supplies would be treated as deemed-supplies or self-supply of assets from date of deregistration. Hence, Businesses need to be careful while applying for deregistration.

However, there are a few underlying benefits of deregistration too. The primary among this is that they can make supplies to unregistered individuals and businesses at cheaper rates than their registered counterparts.

Also, businesses would not have to pay VAT Compliance Fees. However, experts say that the nominal threshold limit will mean that very few businesses will be eligible for deregistration.

7 Business expenses on which Input VAT can be recovered

7 Business expenses on which Input VAT can be recovered

VAT Regime was introduced in UAE on January 1, 2018. It has been almost one year in the introduction of VAT in UAE and we are pretty sure that businesses enterprises are aware of how to claim for the Input VAT recovery.

The UAE government also has clearly mentioned the conditions for the businesses while there is also a detailed list expense wherein the businesses are allowed to recover the Input VAT.

The eligibility of Input VAT has clearly mentioned under the VAT regime. However, there are various types of expenses which people might think not directly related to outward supplies but VAT has allowed people to claim Input VAT recovery on it.

In this article, we are going to tell you about 7 types of expenses which have been frequently incurred by the businesses and they are eligible to recover Input VAT on it.

Input VAT Recovery on 7 business expenses

1. Food and drinks For Customer or clients

If an employer has offered lunch, soft drinks, coffee or any kind of beverages to the customers during the course of the business meeting then the businesses are liable to claim for Input VAT. If providing additional benefits to the customers by presenting gift, movies or lunch in this case businesses would not be liable to claim input VAT on it.

From the above definition, it is clearly stated that the VAT regime allows taxpayers to claim Input VAT on the entertainment expenses only if it is incurred during the course of business meeting otherwise it is totally restricted.

2. Fuel expenses

For instance, if you deal in supplying goods and on the daily routine basis you incurs petrol expenses to deliver goods to the customers in this condition businesses would be allowed to recover input VAT. However, it can be applied in both personal and professional purpose. It is quite difficult to evaluate and distribute the Input VAT recovery. People who are working in the marketing field are allowed to claim petrol expenses.

3. Employee Conveyance Expense

Under the Employment Contract Act, it is clearly mentioned that the conveyance facility should be provided to the employees during the late night hours which includes ‘To’ and ‘From’ the office. Here the business can claim for the petrol expenses incurred by them under the VAT regime.

Reason being a contractual obligation or the documented policy of the organization which has included the said services to the employees for assisting them in performing job responsibility and is a normal business practice.

4. Visa to employee Expenses

The Visa Cost of expat employees has been incurred by businesses in UAE and they pay 5 percent of the cost of Visa. Therefore, businesses would be allowed to recover the input VAT on such kind of expenses. Here, the Visa cost incurs by business enterprises allow employees to perform his duties and it is a normal course of the business activity.

5. Employee Medical insurance Expenses

Businesses in Dubai provides health insurance facility to their employees and pay 5 percent VAT on it. Under the VAT regime, the business can claim for the VAT paid on medical insurance which should be compulsorily provided to the employees.

6. Expenses on legal consultation

In case a business firm indulged in the supply of taxable goods has paid Value added tax on the legal fees on a continuous basis for getting legal consultation service from a legal consultancy, is entitled to get the VAT paid on legal services by the business firm even if it is not directly attached to the supply of goods.

Reason being the non-necessity of link each & every purchase with the outward supply within the business unit as various purchases such as the legal consultancy is used by the business firm other than the supply

7. Service industry Capital Expenditure

For instance, law-based firm deals in supplying taxable services has purchased the new furniture or office table for its employees. Although, the law firm has been using the furniture or table to perform its taxable activities so the law firm is liable to claim for the input VAT incurred on purchasing the new furniture.

Input Tax Recovery in UAE [Process and Conditions]

A registered dealer is liable to pay input tax on every purchase for further course of business. Input Tax Recovery is a key feature of VAT reform in UAE. Under this, the UAE government has allowed registered persons (taxpayers) that they can recover the input tax paid by them on the purchases to avoid the confusion of double taxation in the supply chain.

It simply means that an individual can lessen the figures of input tax by claiming (recovery) the tax payable on inputs and he has to pay the balance amount of tax. Make sure that that tax is to be payable on each stage of the supply chain as value addition.

So, the amount of input tax recovery in UAE plays a significant role in the cash flow and operating expenses under VAT.

Firstly, let’s understand the process of input tax recovery-

Process of Input Tax Recovery

In Abu Dhabi, Vaah & Co has purchased 10 laptops in February 2018 and the price of per computer is AED 1,000.

In the similar month, Vaah & Co supplies 20 laptops to its customers at a price of AED 2,000. A 5 percent VAT has been imposed on the supplies made by Vaah & Co. on the supply which amounting AED 2,000.

Vaah & Co paid AED 2,000 as output tax for the month of January ’18

Input tax recoverable for the month of February ’18 is AED 500

For calculating the tax payable, we can put the figures in the formula

Tax payable = Output tax payable – Input Tax Recoverable

Hence, tax payable by Vaah & Co. for the month of January, ’18 is AED 2,000 (Output tax payable) – AED 500 (Input tax recoverable) = AED 1,500.

As you can see above, the input tax paid by the company will be reduced from their out tax liability, and they are required to pay only the balance tax to the government. This is how input tax works.

Input Tax Recovery Condition

The VAT paid on while buying the goods and services which are used for business cause and for few conditions can be recovered by a registered business.

The conditions which must be satisfied are-

A. Must Be Used To Make Taxable Supplies

Taxable supplies are the supplies on which the tax is likely to be paid (i.e. supplies made at zero-rated supplies or 5%). Only on the inputs which are used to make taxable supplies can be allowed to claim the Input VAT recovery and not the exempt supplies.

B. Recipient Gets And Keeps The Tax Invoice

The recipient who is claiming the input tax recovery on a supply must confirm that they receive the Tax Invoice involved to the supply and must be kept in the records. The Tax Invoice must show all the details of the supply which is associated with the input tax recovery which is to be claimed.

C. Recipient Pays The Remuneration For The Supply

The receiver who claims input tax recovery must pay or plan to make the payment of remuneration for the supply within a half year (6 months) after the date of supply which has been agreed for the supply.

Recoverable Input Tax

The recoverable input tax is the tax amount that has been paid or return by the Federal Tax Authority particularly to the registered taxpayer under the VAT Reform in UAE

A registered taxpayer can claim for the input tax incurred on purchases goods and services in case of:-

  • Taxable supplies
  • Supplies and Services are to be made within a state
  • Exempted Supplies that have been listed in the VAT Decree-Law must be made within the state

Blocked input tax

VAT refund is not available on the input tax paid on the following types of expenses:

  • Employee-related expenses
  • Entertainment expenses
  • Supplies used to make exempt supplies
  • Vehicles used for personal purposes

Useful Article: 7 Hidden Business Expenses Eligible for Input VAT Recovery

So, the supply for input tax recovery is a very important component of VAT in UAE. Businesses must confirm the identity supplies correctly on which input tax can be retrieved, confirm that they can satisfy the conditions for claiming the input VAT recovery and also claiming it on time.

This will help in the business by confirming the perfect cash flow and working capital. All the works can be made simple by using the VAT software which will automatically perform all these tasks w.r.t. ITC which will give enough time for you to focus on your business.

Declaration Of Input Tax Credit In Vat Return Form 201

Now, a taxpayer needs to provide the following details when filing a claim for the credit of taxes in VAT Return Form 201:

    • VAT registration number
    • ITC balance of VAT as per last return
    • Turnover details
    • Date of return filing
    • Details of pending forms
    • Difference in amount (The rate charged at the time – Actual VAT rate on the supplies)
    • Final eligible ITC on VAT

e-Guarantee Cancellation in FTA portal (A Complete Guide)

cancel e-guarantee

The situation of UAE import where an e-guarantee is necessary, are the situations in which the importer is not reliable on the import and if the conditions are not satisfied then the e-guarantee helps as financial security for payment of the VAT due. The submitted e-guarantee earlier will be cancelled if the conditions for cancellation of import VAT are satisfied.

Easy Steps to Cancel e-Guarantee in FTA portal in UAE

Given below is the step by step process to cancel a submitted e-guarantee in the FTA portal

1. Login to FTA portal
2. Click on the ‘VAT’ tab.

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3. Click ‘VAT 701- E-Guarantee Cancellation form’.

e-guarantee-cancellation-form
4. Fill up the e-guarantee cancellation form and give all the required information, including the import declaration number, import declaration date and the e-guarantee number.
5. After the filling of form, click on ‘Submit’ button.6. After the submission of the form, a confirmation message will pop-up on the screen, saying that the request is successful and you will also receive a confirmation email on the given email ID.

vat701-cancellation-request

Read Also: How to Avoid Penalties Under VAT in UAE?

For the import in UAE, the non-registrants who import goods in definite specified situations must submit an e-guarantee. After the customs clear the goods and the conditions for cancellation of import VAT are satisfied then the e-guarantee which was submitted earlier can be cancelled by the process which is given above.

e-Guarantee for VAT in UAE [A Complete Guide]

Here we will discuss all the angles through which the unregistered entity is eligible to pay Value Added Tax on the imports via an e-guarantee while having a look on the process and steps to submit e-guarantee on FTA portal:

Context for VAT Payment via e-Guarantee

  1. Shifting of goods from one VAT designated zone to another
  2. Under customs duty suspension, import of goods into UAE. Customs duty suspension is appropriate for fixed identified goods on which the importers have to pay customs duty at a reduced rate or zero customs duty.

Process for VAT Payment on Import

Given below are the processes by which an unregistered person as to pay VAT in UAE in all these cases-

A. Customs Declaration

In the personal Customs portal, the importers must prepare and propose the customs declaration and do the following-

1. Give all the important details about all the goods being imported
2. For processing, submit customs declaration by Customs

After the approval of declaration, it moves to ‘Pending tax payment’ status.

Note: After the Customs declaration is sent to the FTA then there will be no further editing in the form will be done by the customs system. The status of declaration form can be only changed to either ‘Declined’ or ‘Approved’.

B. Obtain e-guarantee (Financial security)

From their bank, the importers must obtain an e-guarantee. The process for this is-

  • From the bank, get an e-guarantee form for a value equal to the value of VAT due
  • For the e-guarantee, get the reference number

C. On FTA portal, create an e-Services account

The person who is not registered must create an e-Services account on the FTA portal to pay VAT on import. The sign-up process is given below-

  • By entering your email id and a unique password, sign-up as a new user
  • At the registered email ID, you will receive a mail to verify your email ID
  • Your e-Service account will be created after you verify the email ID and you can log in to the FTA e-Service portal

D. Login to the FTA portal and complete the VAT import declaration form

The importer must submit the e-guarantee number which was obtained from the bank after the importer login the FTA e-Services portal. for VAT payment, this e-guarantee number must be submitted in the Form VAT 301- Import declaration form. The customs clearance process can be completed after the submission of e-guarantee number is processes.

The process of VAT Payment on import by registered entities is different from the process for unregistered entities. In a few cases, the unregistered importer has to get an e-guarantee from the bank and submit the same in the FTA e-Services portal.

Steps to submit e-guarantee in FTA portal in UAE

The steps for submission of e-guarantee number in the FTA e-Services portal is explained below-

1. Login to FTA e-Services portal
2. As shown below, click on the ‘VAT’ tab

payment-import-1
3. Click ‘VAT 301- Import declaration form for VAT Payment’

payment-import-2
4. After filling the Customs Authority, Declaration Number and Declaration Date, click Next

payment-import-3
5. The screen ‘About Declaration’ will open and the declaration details (Import date, destination, etc.) will be auto-filled. Click Next
6. The screen ‘Declaration Details’ will open and the declaration details [e.g. HS (Harmonised System) Code, Import Value, Customs Duty, CIF (Cost, Insurance and Freight) value, etc.] will auto-filled. Click Next
7. As the scenario of import requires an e-guarantee, the VAT Payment screen will verify the e-guarantee number to proceed. Fill in the e-guarantee number and click ‘Verify e-guarantee’ button

payment-import-4
8. After the submission of the e-Guarantee is processed successfully, then a confirmation message will appear on the screen giving the transaction ID and the amount. Further, an email confirmation will be received that the e-Guarantee has been successfully submitted. After this, the customs clearance process can be completed.

payment-import-5

The FTA made the simple process for submitting an e-guarantee in the FTA portal. The above process must be followed by the entities who have to pay VAT on imports via an e-guarantee in the mentioned scenario.

Input TAX Credit and Tax Payments Under VAT UAE

input-credit-under-vat-uae

VAT UAE is considered as a general consumption or final consumer tax which is imposed on most of the transactions of goods and services until any particular commodity is exempted by the law.

As per the above line, VAT is levied at every stage of ‘Value Addition’ in the supply chain and the mechanism of Input Tax Deduction guarantees that the companies act as a tax collector or tax agents of the government, who collects the tax from the final consumers, account and pay the tax. Finally, the tax is paid by the final consumer.

As the paid tax on inward supply of goods and services is given as input credit to the tax liable person to ensure the tax component is only a value addition.

Important points for consideration:

1. Payable Tax: Tax which is due for payment to the Authority.
i.e. Payable Tax = Output Tax – Recoverable Tax

2. Output Tax: Tax which is charged on a Taxable Supply and any supply which is considered as Taxable Supply is Output Tax.

3. Input Tax: Tax or due paid by a person when Goods or Services are supplied to him, or when conducting an Import.

4. Recoverable Tax: The paid-up amount which has been returned by the tax authority to the taxpayer according to the provisions of Decree-law in accordance with some conditions.

It has been understood that what Output Tax is. Now, the question arises that does the law permits the registered person to change or update the Output Tax that was once charged on Tax Invoice?

The answer to this question is- Yes. Article (61) of Decree-Law gives the example/ scenarios where an adjustment of Output can be done. Given below are the illustrations in which the registered person can make an adjustment to the Output Tax on supply after the date of supply:

a. If the supply was cancelled.
b. If the Tax treatment of the supply changes due to the change in the nature of supply.
c. If the formerly agreed consideration for the supply was changed for any reason.
d. If the Recipient of Goods or Services returned them to the Registrant fully or in part and the consideration was returned fully or in part.
e. If the tax was levied in any mistake.

If any of the events which are stated above occurs then the output VAT formerly computed requires an adjustment. The adjustment of Tax can result in a decrease or increase in output VAT.

Given below are the conditions for adjusting the output tax amount which is charged in the invoice

If any of the conditions which are given below are met then only the supplier will be permitted to adjust the output VAT on the occurrence of any of the events discussed above:

a. If the Output Tax charged in the Tax invoice does not match the Actual Tax then that must be charged due to any of the examples listed above; or
b. If a tax return has been submitted by the registered person of the particular tax period of the supply duration and the calculated amount is assumed as output tax.

Read Also: 17 Most Important VAT Guidelines For Businesses

Process for Adjusting the Output Tax

a. If in case, actual tax due is more than the formerly imposed, then when such increase is identified, a new tax invoice for the extra amount must be issued during the period. This will be applicable in all the situation which will maximize the output VAT like a change in tax treatment (exempt to taxable), escalation of price (an upward revision of price), error in charging tax in the invoice etc.

b. If in case, the actual tax due is less than what was formerly imposed, then for the differential amount, a tax credit note should be issued which will minimize the output tax of the supplier and input tax of the recipient. For instance: cancellation of supply, the return of goods, etc.

Process for adjusting the output tax in the case on Bad debts

Given below are the condition by which the supplier can make an adjustment of output tax in case of bad debts:

A. Conditions for Supplier:

If the conditions which are given below are satisfied then the registered supplier can minimize the Output Tax in a present Tax Period to adjust the Output tax paid for any formerly Tax Period:

a. Goods and Services has been supplied and the Due Tax has been charged and paid;
b. To write off in full or part as a bad debt the consideration for supply in the supplier account
c. If more than six months have passed from the date of the supply; and
d. The supplier has informed the Recipient of Goods and Services of the amount of Consideration that has already been written.

B. Conditions for Recipient:

The registered Recipient of Goods and Services must minimize the Input Tax for the present Tax Period being claimed during any formerly Tax Period where the Consideration has not been paid and where all the following conditions are met:

a. As mentioned above, the registered supplier has minimized the Output Tax and the Recipient has received an information from the supplier about the amount of Consideration which has been written;
b. The Goods and Services were received by the Recipient and the applicable Input Tax was deducted; and
c. For more than six months, the Consideration was not paid fully or in part.

The amount of reduction by the recipient and supplier must be equal to the Tax on the Consideration which has been written.

Read Also: VAT Penalties: How to Avoid Penalties Under VAT in UAE?

Input Tax

Input Tax is defined as the tax which is paid by the registered person while purchasing Goods or Services and also on the expenses of a business. The tax might be paid by the registrant either to its supplier on goods or services supplied to it or may be paid by it under reverse charge mechanism. But, it is important to note that the only payment of tax on inward supply does not result in such tax which is in nature of the recoverable tax and the test of recoverability of input tax has been stated under Article (54) of Decree Law.

Read more on: 7 Hidden Business Expenses Eligible for Input VAT Recovery

How can a person claim Input Tax for goods which is obtained in another GCC

When Goods are obtained in another GCC and then shifted into the UAE by the same person, then he can claim the credit of tax paid in that country, subject to the conditions which are mentioned in the executive regulations.

Non-Recoverable Blocked/Input Tax Credits

Input Tax must be not available (non-recoverable) if it is suffered by a Person in respect of the following Taxable Supplies:

  1. The person is not considered as a Government Entity as specified in a Cabinet Decision in accordance with Article (10) and (57) of the Decree-Law and a provision of entertainment services not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors
  2. Where a motor vehicle was bought, leased or rented for the purpose of Business and is now used personally by any Person.
  3. Where Goods or Services were bought by the employees for no charge to them and for their personal benefit which includes the provision of entertainment services, excluding the following cases:

a. Where it is a lawful duty to give those Goods or Services to those employees who are under any relevant labor law in the State or Designated Zone.

b. It is a contractual duty or documented policy.

c. Where the provision of goods or services is a deemed supply under the provision of the Decree-Law.

Adjustment of ITC towards Output tax payable

The recoverable input tax can be claimed as input credit, once it is available fulfilling the following conditions stated in Article (55) of Decree-Law:

a. The tax invoice or other duty paying document (in the case of imports) has been received and kept in the records; and
b. Consideration for the supply has been paid fully or in part.

Read Alos: FTA Approves VAT Refund Scheme for Tourists in UAE

Recovery of input tax paid before registration

The taxable person can request a credit of input tax paid after tax registration, in the first return which was submitted post registration. Such claims can be made on:

a. Supply of Goods or Services made to him after registration.
b. Import of goods by him after registration.

It is important to note that for recovery input tax paid before the registration of the taxable person one must conform to file return for the first tax period post registration carefully surveying all the exceptions as discussed below and use of such inward supplies. Post-filing of first tax period such recoverable tax credits could not be taken.

Below are the cases in which input credit cannot be claimed in relation to goods or services obtained before registration:

a. Receipt of goods or services for the purpose of making non-taxable supplies. It is important to note that zero-rated supplies are taxable supplies.
b. Tax credit related to part of capital assets devalued prior to the date of tax registration. If part of the asset is devalued then Input tax cannot be recovered on such assets to the extent such assets are devalued.
c. Services received more than five years before the date of tax registration.
d. Where the goods were shifted to another GCC implementing country prior to tax registration.

Procedure and due date for Payment of Payable Tax

A taxable person must file the tax returns as per the compliance while the tax authority must receive the tax returns not later than the 28th day following the end of the Tax Period concerned or other dates as directed by the Authority.

The Authorities has given three different ways of payment of the payable tax

a. e-Dirham Card: It is a prepaid card that is an integral part of an electronic payment system in the United Arab Emirates (UAE), especially in terms of payment for government service fees.
b. GIBAN: it is a unique IBAN number which is given to all taxable person by Authority and fund transfer can be made from certain UAE financial institutions.

Recommendation: The Process of Making VAT Payments in UAE using GIBAN
c. Credit Cards

Article (22) of Tax Procedures

Within twenty business days of an application being submitted, the authority must review the application and inform said Taxpayer of rejecting or accepting the refund claim. And if the Authority has a reasonable reason for requiring a longer period than twenty business days so to consider his application, he must inform the applicable taxpayer.

Where the Authority has given the permission of refund application, then within five business days of the approval it must:

a. Either make the proper payment to the Person
b. Information of authority offsetting the amount requested for refund against other payable administrative tax
c. Or inform the person that the refund will be delayed until all due Tax return are submitted to the Authority.