The UAE’s Federal Tax Authority (FTA) has clarified that an individual possessing a number of sole establishments may only require one tax registration for all its sole establishments and not a separate registration for each enterprise.
The authority stated that a sole establishment (also known as a sole proprietorship) is a legal type of business owned 100 percent by a natural person and that a sole establishment does not have a legal personality independent of its owner.
This statement was issued in a new public explanation regarding the registration of sole establishments for the purposes of VAT within the context of the public clarification service provided on the FTA website. The purpose of these public clarifications is to familiarize individuals with the tax aspects that require simplified explanations and allow them to apply the tax principles accurately and effectively.
The FTA noted that this public clarification does not apply to a One-Person Company LLC or other similar legal institutions, 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 remembered that a legal person (e.g. a company) cannot own a sole establishment.
Further, it clarified that the tax registrations by taxpayers are checked with regards to sole establishments in certain cases and such individuals will be notified about the corrective measures to be taken if needed.
The authority stressed that the taxable supplies made by a person, in addition to his or her sole establishment(s), must be considered collectively to determine whether the individual exceeded the mandatory VAT registration threshold of $102,090 (AED375,000).
“Any registrant must inform the FTA of any undeclared output tax by submitting a voluntary disclosure following 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),” added FTA.
Furthermore, the FTA informed 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.