How VAT Affects Import & Export Businesses in the UAE
February 24, 2025
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Paying VAT is a routine part of doing business in the UAE, but there are situations where a company may no longer need to be registered for VAT.
Whether due to a drop in revenue, business closure, or a change in operations, VAT deregistration becomes necessary when a company no longer meets the requirements for being registered under UAE tax laws.
Deregistering for VAT is not as simple as stopping tax payments. The Federal Tax Authority (FTA) has clear rules on when businesses can apply for deregistration and a specific process that must be followed to ensure compliance.
Failing to deregister properly can result in penalties, ongoing tax obligations, and unnecessary financial strain.
In this guide, we will explain when VAT deregistration is required, how to apply for it, and the key steps to ensure a smooth transition.
Understanding the process can help businesses avoid unnecessary costs and ensure compliance with UAE tax laws.
VAT deregistration is not optional for businesses that no longer meet the requirements for VAT registration in the UAE. The Federal Tax Authority (FTA) has specific criteria that determine when a company must deregister. Understanding these conditions helps businesses take timely action and avoid unnecessary penalties.
A business is required to apply for VAT deregistration if it no longer qualifies for VAT registration under UAE tax laws. This happens in two main situations.
The first situation occurs when a business ceases all taxable activities. If a company has permanently stopped selling goods or providing services that are subject to VAT, it no longer needs to remain VAT-registered.
Businesses that close down, merge with another company, or shift their operations to a non-taxable activity fall under this category.
The second situation arises when a business’s taxable revenue falls below the mandatory VAT registration threshold of AED 375,000 and is not expected to exceed this amount in the next 12 months.
In this case, the business is no longer required to collect VAT from customers and must apply for deregistration.
Some businesses may still qualify for VAT registration but choose to deregister voluntarily. This applies to companies whose taxable revenue drops below AED 187,500, which is the voluntary VAT registration threshold.
While these businesses are not obligated to deregister, they have the option to do so if maintaining VAT registration is no longer beneficial.
Voluntary deregistration can be useful for businesses that no longer want the administrative burden of VAT compliance.
However, companies that still incur significant VAT on expenses may prefer to remain registered so they can continue to reclaim input VAT.
Failing to apply for VAT deregistration when required can lead to financial penalties and continued tax obligations. The FTA imposes a fine of AED 10,000 for businesses that do not submit a deregistration request within the specified timeframe.
Additionally, businesses that remain VAT-registered must continue filing VAT returns and paying any applicable taxes, even if they are no longer generating taxable revenue.
Businesses should monitor their financial performance regularly to determine whether they meet the criteria for deregistration. Applying for deregistration at the right time ensures compliance with UAE tax laws and prevents unnecessary costs.
Once a business determines that it qualifies for VAT deregistration, the next step is to submit a formal deregistration request to the Federal Tax Authority (FTA). The process must be completed through the FTA’s online portal, following specific steps to ensure proper approval.
The VAT deregistration process begins with logging into the FTA’s e-Services portal using the business’s registered credentials.
Within the portal, there is a dedicated VAT deregistration section where businesses must provide detailed information about why they are applying for deregistration.
The application must clearly state whether the business is requesting mandatory or voluntary deregistration and include supporting details such as financial statements, proof of ceased activities, or documentation confirming revenue levels.
The FTA requires businesses to justify their deregistration request to ensure that they meet the legal conditions for approval.
Before a VAT deregistration request can be approved, businesses must settle any outstanding tax obligations. The FTA will not process a deregistration application if there are unpaid VAT amounts, pending VAT returns, or unresolved tax penalties.
Businesses should review their tax records and ensure that all VAT returns have been filed up to the date of deregistration. If there are outstanding VAT payments, they must be settled before submitting the deregistration request.
Another important consideration is the treatment of VAT on remaining assets. If a business still holds goods, inventory, or fixed assets that were previously subject to VAT, the FTA may require VAT adjustments before deregistration can be completed.
Businesses must assess whether any VAT is due on retained assets and include these details in their final tax filings.
Once the FTA receives a VAT deregistration application, it reviews the submission to verify that all requirements have been met. If additional documents or clarifications are needed, the business may be asked to provide further details.
The approval process typically takes a few weeks, but delays can occur if tax obligations are not fully cleared or if errors are found in the application.
Businesses should monitor their FTA account for status updates and respond promptly to any FTA requests to avoid unnecessary delays.
Once approved, the business receives official confirmation of VAT deregistration, and its Tax Registration Number (TRN) is deactivated.
From this point forward, the company is no longer required to charge VAT, file VAT returns, or comply with other VAT-related obligations.
While the VAT deregistration process may seem straightforward, businesses often encounter challenges that can delay approval or lead to unexpected tax liabilities.
Addressing these issues in advance helps ensure a smooth deregistration process while avoiding unnecessary penalties.
The Federal Tax Authority (FTA) may conduct audits or compliance checks before approving a VAT deregistration request.
Businesses that have been flagged for potential discrepancies in past VAT filings may need to undergo a detailed review before their deregistration is processed.
To prevent delays, businesses should conduct an internal VAT compliance review before submitting their deregistration request.
This includes verifying that all VAT returns have been filed correctly, ensuring that input and output VAT calculations align with FTA regulations, and confirming that all tax invoices are compliant.
If a business has been subject to previous tax audits, resolving any outstanding audit findings before applying for deregistration is critical.
Engaging a VAT consultant can help businesses identify and address compliance risks before submitting their request.
Businesses that hold assets or inventory at the time of deregistration may be required to adjust their VAT liabilities before the deregistration is approved.
The FTA considers whether these assets were previously claimed for input VAT recovery and whether VAT needs to be accounted for upon deregistration.
For example, if a business owns equipment, vehicles, or inventory that was purchased with VAT credits, the FTA may require a VAT adjustment based on the market value of these assets.
This ensures that businesses do not receive undue tax benefits by deregistering while holding taxable assets.
Proper asset valuation and documentation of inventory levels are essential to avoiding unexpected tax liabilities during deregistration.
Businesses should review their asset register and assess whether additional VAT obligations may arise as part of the deregistration process.
If a business has excess input VAT that has not yet been refunded, it must ensure that refund claims are submitted and processed before deregistration.
Once the VAT registration is canceled, businesses lose the ability to reclaim any outstanding VAT credits.
To avoid losing potential refunds, businesses should review their VAT returns and identify any eligible input VAT that has not yet been recovered.
If a refund claim is pending, businesses may need to delay their deregistration request until the refund is processed by the FTA.
Proper planning ensures that businesses do not miss out on VAT refunds due to premature deregistration. Businesses should also ensure that any VAT refunds received after deregistration are correctly accounted for in their final tax filings.
One of the most common mistakes businesses make is delaying the deregistration process after becoming ineligible for VAT registration.
The FTA requires businesses to apply for deregistration within 20 business days of meeting the conditions for mandatory deregistration. Missing this deadline results in a penalty of AED 10,000.
To avoid unnecessary fines, businesses should monitor their taxable revenue regularly and act promptly when revenue falls below the deregistration threshold.
Maintaining proactive financial tracking helps businesses identify when they need to initiate deregistration and ensures that they comply with FTA deadlines.
Another mistake businesses make is assuming that deregistration is automatic once they stop filing VAT returns. The FTA does not cancel a VAT registration unless a formal deregistration request is submitted and approved.
Businesses that stop operations but fail to complete deregistration remain liable for VAT compliance obligations, including return filings and potential penalties.
Once the VAT deregistration request is approved, businesses must adjust their financial and tax records to reflect the change.
Understanding post-deregistration responsibilities ensures that companies remain fully compliant with UAE tax regulations.
Businesses must update their accounting systems to stop collecting VAT on sales and remove VAT charges from invoices.
Any VAT-related entries in financial records should be reconciled to ensure accuracy in past VAT filings.
For businesses that continue to operate in a different capacity, ensuring that new transactions are correctly classified as non-taxable prevents future tax compliance issues.
Working with accountants or tax advisors ensures that all financial systems are properly adjusted after deregistration.
Even after deregistration, businesses must retain their VAT records for at least five years as required by UAE tax laws. The FTA may request access to past VAT filings, invoices, and financial statements as part of compliance reviews or audits.
Maintaining an organized archive of tax records ensures that businesses can respond to any future inquiries from the FTA.
Securely storing VAT records also helps businesses maintain a clear financial history in case they need to re-register for VAT in the future.
Businesses that deregister from VAT but later exceed the mandatory registration threshold must reapply for VAT registration. The FTA allows businesses to register again if they meet the eligibility criteria at a later stage.
To avoid compliance risks, businesses that experience fluctuating revenue should regularly monitor their taxable income.
If revenue exceeds AED 375,000 again, the business must submit a new VAT registration application within 30 days to remain compliant.
Understanding how VAT deregistration fits into long-term business planning helps companies make informed decisions about tax compliance and financial management.
Whether a business intends to remain VAT-free or anticipates re-registering in the future, having a clear strategy ensures smooth operations and regulatory compliance.
The process of VAT deregistration varies depending on the structure of the business. Whether a company is a sole proprietorship, partnership, or part of a larger corporate group, each has unique considerations when applying for VAT deregistration.
Understanding these differences ensures that businesses handle deregistration correctly and avoid compliance issues.
For sole proprietors and small businesses, VAT deregistration is typically straightforward. Since the business is tied to the individual owner, any change in taxable income directly affects eligibility for VAT registration.
If the business owner decides to stop operations or revenue falls below the deregistration threshold, the application process follows standard FTA procedures.
However, sole proprietors must ensure that all personal and business transactions are properly accounted for before applying for deregistration.
Any outstanding VAT liabilities related to personal use of business assets or mixed-use expenses must be resolved to avoid complications during the review process.
For partnerships, VAT deregistration can be more complex, especially if only one partner exits the business while others continue operations.
In cases where the partnership dissolves entirely, the business must settle all outstanding VAT obligations before submitting a deregistration request.
If the business undergoes restructuring but continues to operate under a new partnership agreement, it may need to apply for a new VAT registration instead of deregistering completely.
Ensuring that the transition is correctly documented prevents tax compliance issues and avoids unnecessary delays.
For businesses operating under group VAT registration, where multiple entities are registered under a single VAT number, deregistration must be carefully managed to avoid disruptions to other companies in the group.
If a single entity within the group no longer qualifies for VAT registration, it may be removed from the group while the rest of the businesses remain registered.
If the entire group intends to deregister, all companies within the registration must meet the FTA’s deregistration criteria. This involves closing VAT accounts for all entities, ensuring all inter-company transactions are settled, and clearing any outstanding VAT liabilities.
Businesses under group registration should consult with VAT specialists to navigate the deregistration process effectively.
VAT deregistration has a direct impact on how businesses operate after exiting the tax system. While deregistration may relieve a business from the burden of VAT compliance, it also comes with new financial and operational considerations.
Customers and suppliers often view VAT registration as a sign of credibility and stability. Businesses that deregister from VAT may find that some clients prefer working with VAT-registered suppliers, particularly in B2B industries where VAT-registered businesses can reclaim input tax.
Companies that plan to re-register for VAT in the future should consider how deregistration affects their relationships with customers.
In some cases, maintaining VAT registration voluntarily may be beneficial if a business expects revenue to increase again.
Once a business deregisters, it can no longer charge VAT on sales. This means that product and service pricing strategies may need to be adjusted, especially when dealing with VAT-registered customers.
Businesses that previously included VAT in their pricing must ensure that new pricing structures remain competitive without the VAT element.
Additionally, businesses that continue to incur VAT on purchases but are no longer registered for VAT will not be able to reclaim input VAT.
This can increase operating costs, requiring careful financial planning to manage expenses effectively.
If a business anticipates exceeding the VAT threshold again in the future, it must be prepared to reapply for VAT registration.
Keeping accurate records of taxable revenue and financial transactions ensures that businesses can quickly re-register when needed.
For companies that experience seasonal revenue fluctuations, monitoring VAT obligations closely helps determine whether deregistration is the best long-term strategy.
Businesses that repeatedly register and deregister should establish clear tax management policies to minimize disruptions in compliance and cash flow.
VAT deregistration is a significant financial and tax decision that requires careful planning and compliance with UAE regulations.
Whether a business is closing, restructuring, or experiencing a drop in taxable revenue, it is crucial to follow the correct deregistration process to avoid unnecessary tax obligations and penalties.
Understanding when to apply for VAT deregistration, how to complete the process correctly, and what challenges to anticipate ensures that businesses can exit the VAT system without complications.
Companies must also be mindful of their post-deregistration responsibilities, such as retaining tax records, adjusting pricing structures, and preparing for potential re-registration if revenue increases again.
The Federal Tax Authority (FTA) has strict guidelines for VAT deregistration, and non-compliance can result in financial penalties and operational disruptions.
Businesses that are unsure about their VAT obligations should seek professional tax advisory services to navigate the process smoothly.
At Protax Advisors, we help businesses in the UAE handle VAT deregistration efficiently, ensuring full compliance with FTA regulations.
Whether you need assistance with preparing documentation, settling outstanding tax liabilities, or planning for future VAT re-registration, our team is here to guide you through every step.
Schedule a consultation call and learn how our expertise in accounting and tax services can benefit your business.