As an individual running a business in the UAE, fulfilling tax obligations is something that you cannot compromise. These obligations can encompass registration, filing tax returns, paying taxes, and so on. It may happen that even after fulfilling your tax-related obligations in the UAE, there may arise scenarios requiring proof that you have indeed upheld your tax responsibilities. This is exactly what necessitates a tax clearance certificate in Dubai and elsewhere in the UAE. Let’s explore the purposes of this certificate, the scenarios and transactions where you may require it, and the aspects to weigh before applying for it.
Purpose of a UAE Tax Clearance Certificate
A tax clearance certificate in the UAE acts as proof that you are compliant with the tax regulations in the UAE. It proves that you have cleared all tax payments as of the date, and helps avoid any penalties that may be imposed. Obtaining this certificate further cements your reputation as a business abiding by the UAE’s tax laws. Moreover, this document will have a positive impact on your future tax submissions as well since you have already demonstrated a history of tax compliance. The Federal Tax Authority (FTA) is responsible for governing and enforcing taxes in the UAE and issues tax clearance certificates to eligible entities.
When Does One Require a Tax Clearance Certificate in the UAE?
Below we have explained some common scenarios and transactions that may require a tax clearance certificate:
Merger and Acquisitions (M&A)/Ownership Change
As we know, mergers and acquisitions are transactions through which the ownership of a business is transferred to or consolidated with another business. As part of this, it is crucial to verify that the entity has complied with the relevant tax requirements. This is to ensure that there are no undisclosed liabilities or risks. A tax clearance certificate in this scenario serves as evidence that your business is up-to-date with all tax responsibilities. This way the new owners/stakeholders can rest assured that they will not face consequences in this respect.
Company Liquidation
Company liquidation in the UAE refers to the systematic procedure adopted to shut down a business. In this scenario, a tax clearance certificate gives a confirmation that your business does not owe any outstanding tax payments. It signifies that all tax affairs have been settled before the business can wind up its affairs.
Accessing Specific Banking Services
A tax clearance certificate in Dubai and other Emirates of the UAE serves as an assurance to the bank that the services are being accessed by an entity that is in good standing with the Federal Tax Authority (FTA). Banks often have a requirement to ensure only tax-compliant clients.
VAT Deregistration
VAT deregistration becomes a necessity if the business is closing down or if its taxable supplies are below the specified thresholds. Regardless of the reason, a tax clearance certificate may be necessary before you deregister.
What to Know Before Applying for a Tax Clearance Certificate
It is crucial to note that your application for a tax clearance certificate in the UAE may follow a tax audit by the Federal Tax Authority. If the findings of the tax audit reveal that you are non-compliant, a penalty may be imposed. Hence it is imperative to carefully evaluate your records and liabilities, and only after it has been ensured that you have satisfied all tax commitments, you may proceed to apply for this certificate with the necessary documents.
InZone is a prominent corporate service provider in the UAE, and can assist you in securing a tax clearance certificate. We will assist you with the documentation as well as the procedure involved. One must bear in mind that complying with tax regulations in the UAE is a must before and after obtaining this document. With all-round services for VAT and corporate tax in the UAE, we can help to stay on top of your tax obligations. Whether it is registration, return filing, or deregistration, we have got you covered.
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