‘Sole Establishments’ – Latest Clarification about VAT Registration

A person is allowed to conduct different businesses under the license of sole establishment in the UAE. It is also permitted that a person can obtain separate establishment licenses for various types of work under his name.

The FTA, Federal Tax Authority, has released a clarification VAT021 regarding the registration of VAT of Sole Establishments to remove any ambiguity.

Normally, each person that makes taxable services or goods is obliged to apply for VAT, only if the threshold criterion matches. The law of VAT has clarified the definition of the term ‘person’ as a legal or natural person to avoid mistakes. In the United Arab Emirates, a business is allowed to be held in various legal forms like LLC (Limited Liability Company), PJSC (Public Joint Stock Company), Sole Establishment, and more. There was a misunderstanding about the legal position of the license of Sole Establishments that developed here. It was misunderstood that sole establishment companies were considered a legal individual. Moreover, there was a misunderstanding that a legal person who owned more than one sole establishment had to register for each license separately.

Hence, the public explanation from the Authority has proven that a person’s businesses do not have a separate identity from its holder and are to be considered the equivalent of its holder. Therefore, registering only once for VAT for more than one sole establishment is feasible. It can be obtained as one of the establishments or the owner’s name.

This clarification has also discussed the practical solutions available for established companies that are registered separately but held by one person.

Moreover, the calculation of registering by a legal person has also been discussed. The income of each business the person owns under different licenses is considered liable for calculating the VAT application. So, during VAT registration or when analyzing the eligibility to apply for it, the individual should consider the sale or taxable turnover from other establishments and the need to register for VAT as one.

Let us discuss an example, Mr. A owns a hair salon and also a writing materials shop. However, both these businesses are under different sole establishment licenses. Furthermore, both the businesses are not making a lot of turnover; it is a smaller amount than the registration criteria for VAT. Now instead of calculating the turnover separately and not applying for VAT as the criteria do not meet, Mr. A needs to calculate the turnover together and if they meet the criteria, he must apply for VAT.

The Authority has cleared up the fact that amendments are not needed for businesses who have already registered for VAT. However, in cases where one owns a lot of businesses under different licenses, they should combine the turnover and apply for VAT if the threshold is met.

Hence, as explained above, only one registration of VAT is necessary for a person with sole establishment licenses even if the businesses are of different fields. According to this, the transactions and taxable amount can be put together and be informed to the Authority as the same return of VAT.