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Document Type: PC - Public Clarification
Guidance Code: VATP026
Year:
Related Law: uae-indirect-vat-8-of-2017
Authority: Federal Tax Authority

VAT registration of Sole Establishments - VATP026

VATP026

VATP026

VAT Public Clarification

VAT registration of 'Sole Establishments'

Please be informed that Public Clarification VATP026 replaces Public Clarification VATP021.

Issue

A natural or legal person may own a number of sole establishments. There has been uncertainty on whether each sole establishment needs to obtain a separate VAT registration or whether all such establishments should be included under one VAT registration.

This Public Clarification clarifies the VAT registration obligations of a person in respect of its sole establishments. Note that the term “person” refers to a natural or legal person. [1]

Summary

A person owning a number of sole establishments should obtain only one VAT registration for all its sole establishments, and it is not permissible to register each sole establishment separately for VAT.

The Federal Tax Authority ('FTA') will review, in certain cases, the VAT registrations by taxable persons in respect of sole establishments and will inform them of the corrective steps to be taken, if any.

Detailed discussion

Meaning of Sole Establishment

A sole establishment (also referred to as sole proprietorship) is a form of business which is 100% owned by a person. A sole establishment does not have a legal personality that is independent of its owner, and is accordingly considered to be the same person as its owner. It should be noted that, for VAT purposes, a One-Person Company LLC or other similar entities are not considered sole establishments, and are seen as a distinct and separate legal person from their owner (unless the relevant applicable legislation state otherwise).

VAT registration obligations of Sole Establishments

A person may own a number of sole establishments, which may undertake different lines of business.

On the basis that a sole establishment does not have a legal personality that is independent or different from its owner, and that each person can obtain only one VAT registration, it is hereby clarified that a person should include all its sole establishments under one VAT registration. Therefore, separate VAT registrations should not be sought for the different sole establishments of the same owner.

The VAT registration in such cases should be obtained ideally in the name of the person that owns the sole establishment(s). However, if a person owning multiple sole establishments, wishes to obtain the VAT registration in the name of one of its sole establishments instead, the person may apply to the FTA accordingly.

It is important to note that the taxable supplies by a person as well as his sole establishments, must be considered collectively in order to determine the VAT registration obligations.

Review of previous VAT registrations of sole establishments

The FTA notes that there are some instances where a person may have received separate VAT registrations for different sole establishments.

The FTA wishes to state that it will review such VAT registrations in certain cases and inform the relevant registrants of the corrective steps they should take, if any. It should be noted that, for any VAT registrations received in the past, no action is required to amend the VAT registrations, until specifically directed by the FTA. For all future VAT registration applications, the applicants must conform to the position stated in this Public Clarification.

For the avoidance of doubt, please note that, if a person owns one or more sole establishments, the value of supplies made by the person and all its sole establishments must be aggregated to assess whether the VAT registration threshold has been exceeded.

Consequently, if a registrant disregarded any of his sole establishments or his own taxable supplies for VAT purposes (for example, on the basis that the sole establishment or his taxable supplies did not reach the VAT registration threshold on a stand- alone basis), the registrant is required to inform the FTA of any undeclared output tax by submitting a voluntary disclosure. [2]

If the person and his sole establishments failed to register for VAT, even though the aggregate value of supplies listed in Article 19 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax [3]made by the person and his sole establishment(s) exceeded the mandatory registration threshold of AED375,000, the person will be required to notify the FTA and corrective action must be taken to account for the outstanding VAT.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Law No. 7 of 2017 on Tax Procedures, Federal Decree-Law No. 8 of 2017 on Value Added Tax, and their Executive Regulations.

This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Legislative References:

[1] Article 1 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax defines the term "person" as a "natural or legal person".

[2] Article 10(1) of the Federal Law No. 7 of 2017 on Tax Procedures states that, if a taxable person becomes aware that a tax return submitted by him to the Authority or a tax assessment sent to him by the Authority is incorrect, which resulted in calculating the payable tax according to the Tax Law at a value that is less than it should have been, the taxable person shall, in this case, apply to correct such tax return by submitting a voluntary disclosure within the time limit specified in the Executive Regulation of this Law.

[3] Article 19(1) and (2) of the Federal Decree-Law No. 8 of 2017 on Value Added Tax states that, to determine whether a person has exceeded the mandatory registration threshold and the voluntary registration threshold, the following shall be calculated:

term “person” as a natural or legal person”.

  1. The value of taxable goods and services.

  2. The value of concerned goods and concerned services received by the person unless covered by Clause (1) of this Article.