Issue with VAT registration of Sole Establishments
A natural person may own a number of sole establishments. There has been uncertainty on whether each sole establishment needs to obtain VAT registration separately or whether all such establishments could be included under one VAT registration.
This Public Clarification clarifies the VAT registration obligations of a natural person in respect of its sole establishments.
A individual owning a number of sole establishments needs to obtain only one VAT registration for all its sole establishments and does not require separate VAT registrations for such establishments.
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.
Meaning of Sole Establishment
A sole establishment (also referred to as sole proprietorship or المؤسسة الفردية ) is a legal form of business which is 100% owned by a natural 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 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.
VAT registration obligations of Sole Establishments
A natural person may own a number of sole establishments, which may perhaps 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 natural 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 natural person that owns the sole establishments. However, if a natural person, owning multiple sole establishments, wishes to obtain the VAT registration in the name of one of its sole establishments, the person may apply to the FTA accordingly.
It is important to note that the taxable supplies by a natural person, as well as his sole establishment, 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 natural 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 taxable persons 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 natural person owns one or more sole establishments, the value of supplies made by the natural 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 in accordance with Article 10(1) of the Federal Law No. 7 of 2017 on Tax Procedures. 1
If the natural 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 (hereafter referred to as “Decree-Law”)2 made by the natural person and his sole establishment(s) exceeded the mandatory registration threshold of AED375,000, the natural person will be required to notify the FTA and corrective action must be taken to account for the outstanding VAT.
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