VAT Deregistration Problem? Case Study on Ceased Taxable Activities
Disclaimer: The company names and details mentioned in this case study are fictional and have been created solely for illustrative and educational purposes. Any resemblance to real entities is purely coincidental.
Starting a business in the UAE? Registered for VAT? That's great! However, have you checked its ongoing eligibility since your business operations started? If you haven't, then, like every other company that's stopped selling taxable goods and forgotten to see if they need a VAT registration, your company, under the UAE VAT rules, is obligated to cancel its VAT registration.
To make this price of information a lot less confusing, let us go through the following case study of a consultancy firm in the Free Zone, which kept filing VAT returns for zero sales, not realising that they were supposed to apply for deregistration. This occurred for over a year.
Company Background
➢ Name- Beacon Strategic Advisors FZ-LLC
➢ Location- Dubai Multi Commodities Centre (DMCC)
➢ Business- Business Strategy and Start-up Advisory Services
➢ VAT Registration Since- 2019, April
➢ Revenue in 2023- AED 175000 (not taxed)
➢ In 2024- No clients, Zero taxable transactions
After flourishingly operating its business from the year 2019 to 2022, Beacon Strategic Advisors FZ-LLC halted services in 2023. Although the company did retain its bank accounts and trade licences for future possibilities. However, they never continued to make any taxable sales or inputs for over a year.
Purpose of this study
- To check and see if the company needed to remain VAT registered or not.
- Understand the downside of not cancelling registration on time.
- Look for possible penalties and ways to get things sorted.
Legal Framework
Under Article 21 of Federal Decree-Law No. 8 of 2017 (VAT Law) and Article 14 of Executive Regulations:
Suppose a company has applied for VAT but fails to sell taxable goods and services without the intention of doing so for the next 12 months. In that case, the company is liable to deregister itself within the next 20 business days. If not, the company will have to face administrative fines.
The Problem
What went wrong here was that Beacon continued to submit "nil" VAT returns through EmaraTax every single month. Things got out of hand as the finance team failed to recognise the need for deregistration. Beacon had stopped doing any sort of taxable activity at this point.
In the end, this was noticed after the FTA's system flagged Beacon for a review after assuming the company to be likely inactive.
FTA notification and fine
During the first quarter of 2025, Beacon was questioned by the Federal Tax Authority as to why it had continued to remain registered. Secondly, Beacon was asked why, even without any business activity, zero returns have been filed.
Following the FTA review, it was concluded that Beacon should have deregistered by March 2023, leading to a penalty of AED 1000. It was to be noted that the penalty would go up if delays continued to occur.
Effects on the Business
- A large amount of time and effort was wasted due to monthly filings and paperwork.
- Despite receiving multiple warning letters prior, they still failed to file on time.
- Due to a delay in deregistration, the potential recovery of costs was missed out on.
Lessons
- A company is legally bound to deregister if any taxable activities cease to exist.
- A company is not counted as a taxable business just by owning a license or trade name.
- Penalties will still be charged after filing zero returns.
- Even if the business is inactive, VAT status must be regularly checked.
Solutions found
- Beacon provided backdated reasoning and deregistered through EmaraTax.
- They provided an explanation of the period and the reason behind the cessation of activity.
- All fines and outstanding returns were paid o?.
- A system was set up using an international compliance calendar to stay on track with deadlines.
Compliance Tips
- Assess the VAT status of your business yearly, especially in cases where there appears to be slow turnover.
- Within 20 business days, you must deregister your business if all taxable activities stop.
- Keep records of everything to avoid any issues during any possibilities of future fines.
- Check the status and eligibility of your business using the EmaraTax portal and FTA tools.
How Flyingcolour Tax Consultant Can Help?
Our VAT experts assist UAE businesses to:
- Keep track of your company's VAT rules and compliance triggers.
- File your company's VAT deregistration promptly and accurately.
- Handle any responses to be given to the FTA notices and audits.
- Maintain your business's compliance even during slow times.
To learn more about Case Study: VAT Deregistration Lapse Following Cessation of Taxable Activities, 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.