Businesses in the United Arab Emirates (UAE) that no longer meet VAT registration requirements are legally obliged to deregister with the Federal Tax Authority (FTA). Whether due to business closure, a drop in taxable turnover, or operational restructuring, VAT deregistration is a critical compliance step that must not be overlooked.

This guide by AM Audit outlines the legal basis, process, and risks involved in VAT deregistration, and provides businesses with clear steps to ensure compliance with UAE tax regulations.

What is VAT Deregistration?

VAT deregistration is the formal cancellation of a business’s VAT registration with the FTA. Once deregistered, the business is no longer permitted to:

• Issue VAT invoices

• File VAT returns

• Claim input VAT on purchases

• Maintain VAT-specific recordkeeping under the VAT Law

Deregistration is required when a business ceases taxable activities or no longer meets the financial thresholds established for VAT registration.

When is VAT Deregistration Required?

VAT deregistration can be mandatory or voluntary, depending on the nature and scale of a business’s operations.

Mandatory Deregistration

A business must apply for VAT deregistration within 20 business days if:

• It ceases making taxable supplies. This could be due to liquidation, merger, or a shift in activity that excludes VAT-liable transactions.

• Its taxable turnover and imports over the past 12 months fall below AED 187,500, the voluntary VAT registration threshold.

Failure to comply with this requirement within the stipulated period can result in significant administrative penalties.

Voluntary Deregistration

A business may apply for VAT deregistration voluntarily if:

• Its turnover over the past 12 months is below AED 375,000 but above AED 187,500, placing it outside the mandatory threshold but still above the voluntary registration level.

This option is often used by businesses undergoing restructuring or seeking to simplify administrative obligations.

The VAT Deregistration Process in the UAE

To properly deregister from VAT in the UAE, businesses must follow these steps in accordance with FTA procedures:

Step 1: Submit the Application

• Access the EmaraTax platform and complete the deregistration form under the VAT section.

• Applications must be submitted within 20 business days from the date the business becomes eligible.

Step 2: Settle All Outstanding Liabilities

• Before deregistration can be finalized, the business must ensure all VAT dues are cleared. This includes:

  • Pending VAT payments

  • Late penalties

  • Interest on unpaid taxes

• All prior VAT returns must be submitted accurately and on time.

Step 3: File the Final VAT Return

• This return should reflect all taxable transactions from the date of the last return up to the date of deregistration.

• It must be filed through the FTA portal, along with any final VAT payments due.

Step 4: Await FTA Approval

• Upon review, the FTA may request additional information or documentation.

• If all obligations are fulfilled, the FTA will approve the deregistration request and update the business’s VAT registration status accordingly.

Penalties for Non-Compliance

Delays or errors during the deregistration process may lead to penalties under UAE tax law. Common penalties include:

Timely action and professional oversight are essential to avoid these penalties.

Common Challenges and How to Address Them

Businesses may encounter several obstacles during deregistration:

• Unsettled VAT balances: Conduct a full reconciliation of prior filings to identify and resolve outstanding payments.

• Incorrect final return: Seek assistance from a qualified tax advisor to ensure accuracy and completeness.

• Missed deadlines: Maintain internal alerts and assign responsibility for VAT monitoring and compliance.

Engaging a tax consultant early can prevent delays and minimize exposure to penalties.