What is new?
FTA (Federal Tax Authority), issued public clarification in May 2021 to clarify the requirements of VAT registration for sole establishments. FTA will review all establishments exiting as a registered business for VAT purposes and inform sole establishments if changes are required. There are plenty of VAT changes that will arise due to this amendment and UAE business owners need to evaluate the requirements to comply with the tax system.
This clarification clarifies the VAT registration obligations of a person (natural or legal) in respect of its sole establishments.
Meaning of Sole Establishment
In the UAE, sole Establishments are very much similar to the owner-managed business. There is no legal separation from the owner to the establishment. Hence owner and the business in the legal context are the same. However, some organizations that have a separate legal structure in the UAE are not considered as establishments even those are single owner LLC (limited liability companies).
VAT registration obligations of Sole Establishments
It is very important now business owners have multiple businesses evaluate the situation of the business revenue since the consideration for the threshold should be combined revenue. For example, if a business owner managing two establishments of which revenue was under the threshold of AED 375,00 individually. But if the combined revenue is more than AED 375,000, then the Establishment needed to register and pay VAT on the sales value. Hence, combined revenue is considered for the VAT registration threshold.
Review of previous VAT registrations of sole establishments
You may have received separate VAT registrations for different sole establishments. The FTA will review such VAT registrations in certain cases and inform the relevant registrants of the corrective steps they should take if any. It should be noted that, for any VAT registrations received in the past, no action is required to amend the VAT registrations, until specifically directed by the FTA to you.
For the future tax registration, it will be only one for all Establishments.
If the person and his sole establishments failed to register for VAT, even though the aggregate value of supplies listed in Article 19 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax made by the person and his sole establishment(s) exceeded the mandatory registration threshold of AED375,000, the person will be required to notify the FTA and corrective action must be taken to account for the outstanding VAT.
It is our opinion that many sole establishments in the UAE are yet to review the passion of the public clarification. For example, where the unregistered owner and unregistered sole establishments may be subject the revenue to VAT and report to the FTA considering the combined revenue threshold.
How we can help?
Over the past three years, we have helped the UAE business community by providing tax consultancy services. If you wish to minimize or eliminate any potential tax fines and penalties, please take advantage of this free consultation available. Please contact us through firstname.lastname@example.org or www.crevaty.com