The VAT Legislation

Under the VAT legislation, there has been some ambiguity concerning the tax registration status for sole establishment license. An individual establishment is distinct from other legal statuses in that a natural person is a 100% owner of the establishment the same person can own and several separate businesses operating different trading activities.

This can lead to a natural person owning several individual establishments registering separately for each establishment.

Under this clarification VATP026, the FTA has definitely stated that a natural person owning several sole establishments may only obtain one tax registration for all its establishments, and not a registration for each establishment separately.

The FTA has determined a sole establishment (also referred to as sole proprietorship) is a legal form of business that is 100% owned by a natural person. A sole establishment does not have a legal personality independent of its owner, as such the sole establishment and its owner are considered to be the same person.

This public clarification does not apply to a One-Person Company LLC or other similar legal entities. These are considered distinct and separate legal persons under the law from their owners, unless the applicable legislation judges the entity and the natural person to be the same person. Of note is a legal person (e.g. a company) cannot own a sole establishment.

How Does This Affect The VAT Registration & Taxable Supplies?

Taxable supplies made by the person and all individually owned establishments should assess it collectively and accumulate taxable supplies. Therefore, they must be considered collectively to determine whether the person exceeded the mandatory VAT Registration threshold of AED 375,000.

In practice, the owner must account for all supplies for his personal taxable supplies and all owned sole establishments.

Where there are cases of separately VAT Registered Sole Establishments, the clarification provides guidance that no action is required. The FTA will provide instructions and any measures to be taken to remedy the situation if required.

What If A Sole Establishment Is Not Accounting For VAT?

The clarification details explicit requirements that the registrant must inform the FTA of any undeclared output tax. This must be conducted by submitting a voluntary disclosure in compliance with Federal Law No. 7 of 2017 on Tax Procedures.

This also includes any situation where the registrant has not accounted VAT for any of his sole establishments or taxable supplies made in his personal capacity. A likely scenario is where a person was unable to register for VAT on the grounds that the mandatory VAT Registration threshold was not exceeded on a stand-alone basis by that natural person applicable or his sole establishment(s).

The FTA further explains that the natural person must notify the Authority if it failed to register for VAT and take the necessary corrective action to account for any outstanding VAT.

About Us

The clarification compels taxpayers to manage any implications and correct underdeclared VAT for unregistered companies. If you are a sole establishment requiring assistance to manage this impact, as an approved FTA Tax Agency we have assisted many businesses to assure the completeness and preparation of their VAT obligations. Our approach is underpinned by ISO 9001 Quality & 27001 Information Management certifications to ensure we operate with consistent quality and security.