To Wind Up Your Business Without Legal Complexities In Dubai
It is very crucial to understand and act on the smooth exit of business entities set up in Dubai in order to avoid future legal complications and penalties. In this article, we are going to explain the main areas where the business owners should focus while the company is liquidated. We will be mainly focusing on the tax matters to be taken care of by company owners during the company windup.
The passing of Board Resolution/Shareholder resolution to wind up the company
The first step in company liquidation is that the shareholders shall pass a board resolution which is unanimously passed by all the shareholders of the company. In order to liquidate the mainland companies, this board resolution is required to be passed and validated by a notary. In the resolution, the shareholders shall appoint an auditor to liquidate the company.
Appointment of a liquidator
An official liquidator is required to be appointed, who is in general an auditor. The liquidator’s report stating that the company has settled all the assets and liabilities of the company, the bank account is closed, the employee's payments are settled, matters with Federal Tax Authorities are settled and the Tax Registration Numbers etc., is a requirement by for all mainland companies and most of the Free Zone and Offshore authorities.
Newspaper advertisement
Depending on the authority requirement a newspaper advertisement for company liquidation is required to be published in the local newspaper. In order to process the liquidation certificate, after the newspaper advertisement, the liquidator awaits generally from 15 days to 45 days.
While most of the business owners are aware of the liquidation procedures, we want to highlight here the complications which may arise during company windup due to the lack of knowledge or negligence regarding the matter settlements with the Federal Tax Authority. Let us dive into this.
Cancellation of Value Added Tax Registration number
It is very important to put an application to FTA to cancel the VAT number if the company is VAT registered. Below are the mandatory circumstances where the taxable person shall submit the VAT de-registration application to the authority;
- If the taxable supplies of the VAT registered person are below the voluntary threshold (AED 187,500) in the previous 12 months and not expected to exceed the voluntary threshold in the coming 30 days.
- If the VAT-registered person ceases the business activity, it is liquidated in the case of companies.
Once the business owner decides to wind up the company, the application to the authority for cancellation of the VAT number needs to be filed within 20 business days. Failure to submit the application within the prescribed time limit can attract an administrative penalty of AED 1,000/- per month and the maximum penalty is AED 10,000/-
While applying the VAT number cancellation due to the liquidation, the company is required to submit the decision of liquidation. Apart from this, the turnover declaration for the last 5 years also needs to be submitted. FTA reviews the documents and may ask for further documents or details if required.
Once FTA pre-approves the VAT cancellation, from that day onwards, the taxable person must not make any tax invoices using the VAT number or not collect any VAT from any customer. FTA asks to submit the final VAT return and make the settlement of all VAT dues. In case, any refund for VAT is available with the authority, the taxable person needs to provide an application to get the refund with the necessary documents prescribed by the authority.
Once all the steps are cleared, FTA issues the final VAT de-registration certificate. Obtaining this final certificate is very crucial and many back-and-forth communications may be required between the authority and the taxable person. Not taking proper action to cancel the VAT number can result in huge penalties and other legal complications.
Cancellation of Corporate Tax Number
Unlike VAT, where there is a minimum threshold required to register and the place of supply matters for VAT registration, Corporate Tax registration is mandatory for all the businesses established in the UAE. Any new company formed in UAE after 01 March 2024 must apply for a Corporate Tax registration number within 3 months from the date of license issuance in order to avoid the late registration penalty of AED 10,000/-. Read more about Corporate Tax registration deadlines.
Similar to Corporate Tax registration, de-registration of tax numbers after ceasing the business is also equally important. Once the company liquidates, the TRN for Corporate Tax, through an application, shall be cancelled. This application needs to be submitted within 3 months from the date of liquidation and delay in liquidation can attract an administrative penalty of AED 1,000 per month and a maximum penalty of AED 10,000/-. Have you liquidated your company in the first tax year? We have written a detailed article on this. Read more.
Once the application is submitted, FTA reviews the application and asks to submit the financial statement for the tax year where liquidation is carried out. In order to avoid the delay, it is recommended that the financial statement be submitted upfront along with the initial application. If all documents are fine, FTA pre-approves the Corporate Tax de-registration application and requests the taxpayer to submit the final tax return. Up on filing the final tax return and clearing all the payments to FTA, if any, authority issues a final de-registration certificate for Corporate Tax.
The same process explained is applicable for Excise Tax registration as well. We have not included it here as it is applicable only to businesses that deal with excise-related goods.
In our experience, many company owners are penalized due to a lack of knowledge or negligence while closing the matters with the Federal Tax Authority. These can cause unnecessary delays in the company liquidation process. In order to avoid these types of complexities while liquidating your business, we Flying Colour Tax Consultant can assist you in getting the application processed with the Federal Tax Authority and settle the matters to get a smooth exit from business.
To learn more about How to Wind up Your Business Without Legal Complexities in Dubai?, 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.