VAT For Sole Establishments in UAE

The Federal Tax Authority ("FTA") clarified that a natural person owning a number of sole establishments may only obtain one tax registration for all its sole establishments, and not a registration for each establishment separately.

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

The FTA stated that this public clarification does not apply to a One-Person Company LLC or other similar legal entities, which are seen as distinct and separate legal persons from their owners (unless the applicable legislation treats such entity and the natural person as the same person). For the avoidance of doubt, it should be noted that a legal person (e.g. a company) cannot own a sole establishment.

The FTA explained that, in certain cases, tax registrations by taxpayers are reviewed with regards to sole establishments and such persons will be informed of the corrective measures to be taken, if needed.

The FTA emphasized that the taxable supplies made by a natural person, in addition to his sole establishment(s), must be considered collectively in order to determine whether the person exceeded the mandatory VAT registration threshold of AED 375,000.

The FTA indicated that any registrant must inform the FTA of any undeclared output tax by submitting a voluntary disclosure in accordance with Federal Law No. 7 of 2017 on Tax Procedures, for example where the registrant disregarded any of his sole establishments or taxable supplies made in his personal capacity for VAT purposes. This includes instances where a person failed to register for VAT on the basis that the mandatory VAT registration threshold was not exceeded on a stand-alone basis by that natural person or his sole establishment(s).

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