VAT registration of ‘Sole Establishments - In the UAE, a natural person may conduct various business under a sole establishment license. It is also permitted in the UAE for a natural person to obtain separate sole establishment licenses for the different line of businesses owned by him. Accordingly, a natural person can own more than one sole establishment licenses as well. In such a practical scenario, there existed an uncertainty, whether it is required for a natural person to obtain separate VAT registration for each of his sole establishment license. The Federal Tax Authority of UAE has issued a public clarification VAT021 regarding the VAT registration of ‘Sole Establishments’ to resolve the ambiguity existed on the VAT registration obligation of a natural person in respect of sole establishment owned by him.
DETAILED DISCUSSION - VAT registration of ‘Sole Establishments
Generally, every person making a taxable supply of goods or service in UAE is required to register for UAE VAT if the registration threshold criteria are met. The VAT Law has provided a definition for the term “person”, which includes a natural or legal person. In UAE, business is permitted to be carried out in different legal forms such as public joint-stock company (PJLCs), Limited liability company (LLCs), sole establishments etc. Here, there existed a misunderstanding on the legal status of a sole establishment license. Sole establishment businesses were misinterpreted as legal person and there was an impression across the industry that a natural person who owns multiple sole establishments must register each of his licenses separately for VAT.
Through the public clarification on VAT registration of ‘Sole Establishments’, the authority has well clarified that though the sole establishment is a legal form of business with hundred percentage ownership is held by a natural person, it does not have any identity which is separate from its owner, i.e., the natural person. Therefore, sole establishments shall be considered as same as its owner. So, the owner or the natural person can obtain a single VAT registration for the multiple sole establishments owned by him. The VAT registration may be obtained in the name of the natural person or in the name of one of its sole establishments.
The public clarification VAT registration of ‘Sole Establishments also provides the practical remedies available for sole establishment business which are separately registered for VAT but owned by a single natural person. It is guided by the authority that in such cases, no action is required from the part of registrant unless specific directions are issued by it in this regard.
Another aspect covered by the public clarification VAT registration of ‘Sole Establishments is regarding the computation of registration thresholds by a natural person owing to multiple sole establishments. It is well clarified that the turnover of all lines of businesses owned by him under separate sole establishment licenses are aggregated and considered for computing the VAT registration threshold limit. So, while registering for VAT or reviewing the eligibility for VAT registration, the taxable person should consider the taxable turnover or sale from all other sole establishments and need to apply for VAT registration as one.
Let us consider a practical example, Mr Ali, an Emirati, owns a beauty salon named “Beauty clinic” in Dubai having a sole establishment license. He also owns a stationery shop “Ali and Co. Stationery” under another sole establishment license in Dubai. Both the salon and stationery do not have much business and its individual turnover for the past 12 months is less than the VAT registration threshold limit of AED 375,000/-. Here Mr Ali needs to consider the turnover of the sole establishments together to decide the VAT registration even though the individual turnover of the sole establishments is less than the VAT registration threshold. Hence if the taxable turnover of salon and stationery together satisfies the VAT registration threshold, then he should register for VAT.
Practically there can be some scenarios like few establishments are already registered separately based on the taxable turnover. As clarified by the authority, no amendment is required for existing registrations unless notified by the authority. But there would be cases some of the sole establishments are not registered earlier because of lower turnover or less than registration threshold. In such cases, we should consider the turnover of the unregistered sole establishments along with the existing VAT registration. In some cases, the person may submit a voluntary disclosure to report any undeclared output tax for the previous period in respect of supplies made by the disregarded business.
CONCLUSION - VAT registration of ‘Sole Establishments
Though the public clarification VAT registration of ‘Sole Establishments issued by the authority has given clarity on registration of sole establishments. As explained only one VAT registration will be required for all sole establishments of a person even though the businesses might be different. Accordingly, the taxable amount and transactions can be considered together and reported to the authority in the same VAT return.