Do UAE companies need new VAT registration when converting operations?

Many UAE businesses — domestic and foreign — are repositioning themselves to be a part of UAE growth story.

- BY PANKAJ S JAIN Special to Gulf News

Business owners are converting their sole establishment or partnership into an incorporated company. Foreign businesses are also opting to convert their UAE branch into a local company. The licensing authorities treat such conversions as a change of ownership.

The same licence number and licence issue date — as mentioned on the earlier licence — is continued on the licence issued to the newly formed company. The custom authorities also update their records and allow the new entity to continue with the existing custom code.

The banks permit the new entity to use the existing bank accounts by updating their records instead of requiring a new bank account.

The Value Added Tax (VAT) compliance for such conversions are however resulting in a Catch-22 situation for businesses.

For conversions post January 1, 2018, businesses are being advised to deregister the existing tax registration number (TRN) and separately register the newly formed company.

Administrative penalties are attracted for the delay in submitting the de-registration application as also the new registration application.

The concept of separate VAT registration and inability to continue under the existing VAT TRN — despite the same licence number — could result in unintended financial implications.

VAT and penalty arrears