Missing the 20-day deadline for mandatory VAT deregistration results in an automatic penalty of AED 10,000 imposed by the Federal Tax Authority. Beyond the financial penalty, you'll also face continued compliance obligations, meaning you must continue filing VAT returns and maintaining VAT compliance until your deregistration is approved. This can create additional administrative burden and costs.

Furthermore, the FTA may scrutinize your application more closely if submitted late, potentially leading to requests for additional documentation or justification for the delay. In some cases, persistent non-compliance can trigger a tax audit. If you realize you've missed the deadline, submit your application immediately and consider including an explanation letter with your application. The FTA may show leniency in exceptional circumstances, though the penalty typically still applies.

Best Practice: Set multiple calendar reminders well before the deadline, and consider engaging a tax consultant if you're approaching the deadline and haven't prepared your application.

Technically, you can submit a VAT deregistration application even with outstanding liabilities or unfiled returns, but the FTA will not approve your deregistration until all compliance issues are resolved. This means you must:

• File all outstanding VAT returns (including nil returns if applicable)
• Pay all VAT liabilities, including any penalties and late payment charges
• Resolve any pending disputes or clarification requests from the FTA
• Ensure your account shows no compliance red flags

The deregistration process will be placed on hold until these issues are addressed. In practice, it's far more efficient to resolve all outstanding matters before submitting your deregistration application. This prevents delays and demonstrates good faith compliance to the FTA.

If you're facing financial difficulties and cannot pay outstanding VAT immediately, consider contacting the FTA to discuss a payment plan before applying for deregistration. The FTA has shown willingness to work with businesses facing genuine hardship.

Closing stock must be valued at the lower of cost or current market value as of the deregistration date. The FTA expects you to conduct a physical inventory count and apply consistent, reasonable valuation methods. For trading goods, use the actual purchase cost or current market price (whichever is lower). For manufactured goods, include direct materials, labor, and allocated overheads.

Valuation Methods Accepted by FTA:

• FIFO (First In, First Out): Most commonly used and accepted
• Weighted Average Cost: Acceptable for fungible goods
• Specific Identification: For unique, high-value items

If the FTA disagrees with your valuation during their review, they will issue a query requesting justification or additional documentation. You'll need to provide supporting evidence such as purchase invoices, price lists, or independent valuations. If you cannot reach agreement, the FTA may impose their own valuation, which you can contest through the formal objection process.

Important: Deliberately undervaluing stock to reduce VAT liability can result in penalties for providing false information (AED 5,000 to AED 20,000) plus the additional VAT due.

Yes, absolutely. This is one of the most critical compliance points that many businesses misunderstand. You must continue to charge VAT on all taxable supplies until the effective deregistration date confirmed by the FTA. The period between application submission and approval can take 2-4 weeks, and during this entire time, you remain a registered taxable person with full VAT obligations.

What you must continue to do:

• Charge VAT at 5% on all standard-rated supplies
• Issue tax invoices with your TRN
• Maintain VAT records and documentation
• File VAT returns for any tax periods that fall within this timeframe

Stopping VAT charges before the official deregistration date is a serious violation that can result in penalties of AED 5,000 per incorrect invoice, plus you'll still owe the VAT that should have been collected. Only after receiving official confirmation from the FTA with a specific effective deregistration date can you stop charging VAT.

Pro Tip: Communicate clearly with your customers during this period. Some may be confused when you continue charging VAT after announcing your intention to deregister. Explain that you're legally required to do so until official approval.

Yes, you can re-register for VAT after deregistering, and there is no mandatory waiting period imposed by the FTA. However, you must meet the registration criteria at the time you apply for re-registration, which means either:

• Mandatory Re-registration: If your taxable supplies exceed AED 375,000 in any rolling 12-month period, you must register within 30 days
• Voluntary Re-registration: If your taxable supplies exceed AED 187,500 in the past 12 months or you expect to exceed this in the next 30 days

Important Considerations:

While there's no official waiting period, the FTA will scrutinize re-registration applications more carefully if they occur shortly after deregistration. You may need to demonstrate that circumstances have genuinely changed, such as:

• Substantial increase in business activity
• New contracts or clients that boost turnover
• Business expansion or new product lines

If the FTA suspects you deregistered and re-registered to manipulate VAT obligations or gain unfair advantage, they may reject the application or launch an investigation. Repeated deregistration and re-registration cycles can trigger audits.

Practical Impact: Re-registration means going through the entire registration process again, including updating all business documentation, reconfiguring accounting systems, and notifying stakeholders. Consider this administrative burden before voluntarily deregistering if there's any chance your turnover might increase again.

For businesses navigating the decision between different business structures, our guide on free zone vs mainland tax implications provides valuable insights.