When to Deregister VAT in Dubai? Thresholds & Penalties
The Value Added Tax(VAT) was introduced in the UAE in 2018. All businesses falling under VAT law are supposed to register based on a certain threshold set by the federal tax authority, regardless it is an individual or a company. The VAT compliance is not only just the registration it is also about the quarterly return filing and timely deregistration. Most business owners or individuals are aware of the registration and quarterly return filing, but they are unaware of when to deregister VAT.
This blog helps you understand when a business in the UAE has to do the deregistration, because failure can result in paying a penalty to the authority, which is a real waste of money. Here in the blog, you can see the conditions set by the law and some practical scenarios where deregistration can benefit or be required
Legal Basis for VAT Deregistration in the UAE
The VAT deregistration rules are set under the Federal Decree-Law No. 8 of 2017 on VAT and its Executive Regulations. As per FTA VAT law, a VAT registered person, ie, a Natural or juridical person, may apply for deregistration if:
1. Compulsory Deregistration:
- If the company stops producing/dealing with the taxable supplies
- If the annual taxable turnover is less than the voluntary registration threshold, ie AED 187,500.
2. Voluntary Deregistration:
- If the business’s taxable turnover is less than the mandatory threshold, ie AED 375,000 in the past 12 months.
- If the business does not expect to cross the threshold in the coming 30 days.
In any of the above-mentioned cases, the applications must be submitted to the authority within 20 working days. If you fail to do so, you may result in paying the administrative penalties issued by the FTA.
Key Scenarios for VAT Deregistration
1. Business Closure
If a company stops the business operation (e.g. liquidation or license cancellation), then they are mandated to apply for VAT deregistration. If continued without deregistering, and no active operations can lead to non-compliance and penalties.
Example:
A company in JAZFA who were into trading is shutting down today; they will definitely do the deregistration within 20 working days since they stopped dealing with taxable supplies.
2. Turnover Falls Below Thresholds
The company may voluntarily deregister for VAT if the taxable supplies for the last 12 months remain less than AED 375000 and are expected to remain the same.
Example:
In 2024, a consultancy in Dubai generated a revenue of AED 250000. If the company owner expects no increase in turnover, then it is always advisable to deregister since the revenue is less than the mandatory threshold. This approach will reduce the compliance cost.
3. Change in Business Model
If a company changes its operations so that it no longer makes taxable supplies, it must apply for deregistration.
Example:
An e-commerce business stops selling goods and pivots to managing investments, which are not subject to VAT. It no longer needs VAT registration.
4. Branch or Entity Restructuring
When businesses merge or transfer activities, one of the entities may no longer meet the VAT registration criteria. Deregistration avoids duplication.
When two businesses transfer their activities or merge, one entity may no longer need VAT registration. Deregistration in such cases can avoid duplication and create a VAT group.
Example: If 2 companies merge, then it has to be consolidated under the same VAT group, and the absorbed entity has to undergo deregistration
5. Ceasing International Operations
In some cases, deregistration can be useful, for example, initially, during the business activity, some businesses considering the cross-border transaction will get registered for VAT, but later they restrict their operations outside the VAT scope.
What Happens if You Delay Deregistration?
If a company or individual fails to deregister on time can result in:
- Administrative Penalties: The FTA will impose a penalty for delay in deregistration.
- Unnecessary Compliance Costs: Filing of VAT returns until deregistration, maintaining records as per the authority guideline since not deregistered, and can undergo unnecessary audits for a dormant entity.
The Deregistration Process
1. Log into the FTA e-Services Portal
- Apply for VAT deregistration.
2. Provide Supporting Documents
- Evidence of closing the business operation, turnover reports, or restructuring supporting documents.
3. FTA Review
- The FTA may come back requesting certain documents for clarification.
4. Final VAT Return & Settlement
- Businesses have to file a final VAT return and have to settle outstanding tax due if any, before the confirmation of deregistration.
Practical Example
Case Study (Fictional):
A company called Blue Horizon Interior LLC in Dubai registered for VAT in 2018. Gradually, the company’s annual turnover has fallen to AED 180,000. In 2025, during the audit from FTA, it came to notice that the company had to deregister VAT, realising the condition that the company’s turnover is less than the voluntary threshold.
A proactive approach in compliance confirmation can result in:
- Avoided late de registration penalties.
- Reduces the compliance costs annually, such as VAT audit fees, unnecessary filing fees, and unnecessary penalties due to missing VAT return filings.
- Helps in streamlining the business structures.
Things to Consider Before Deregistration
- Input VAT Recovery: cannot be reclaimed post-deregistration.
- Assets on Deregistration Date: If any business assets have VAT value over AED 5,000, the VAT value has to be settled back to FTA.
- Future Plans: If turnover is expected to rebound above AED 375,000 in the coming 30 days, deregistration may not be advisable.
- FTA Clearance: All tax liabilities must be cleared before the deregistration is approved by FTA.
Conclusion
All businessman has to understand that the VAT deregistration is not just an administrative formality. It is a compliance requirement. A better solution going forward to stay compliant is to track the turnover, business activity and the operational changes carefully. This tracking will provide a better understanding of when to register & deregister for VAT. This proactive measure can help you save on paying penalties, reduce unwanted compliance costs, also make the business operation streamlined.
How Flyingcolour Tax and Consultant Can Help?
At Flying Colour Tax Consultant LLC, we help businesses in Dubai and across the UAE by:
- Assessing whether your business qualifies for deregistration
- Preparing the VAT returns
- Submission of VAT deregistration applications
- Handling FTA communications and final return settlements
- Advising on restructuring for VAT efficiency
To learn more about When Should Your Dubai Business Apply for VAT Deregistration?, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.