VAT registration of ‘Sole Establishments’
Whether each sole establishment, owned by a natural person , needs to obtain VAT registration separately or whether all such establishments could be included under one VAT registration.
A sole establishment (also referred to as sole proprietorship) 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.
Rationale: A sole establishment does not have a legal personality that is independent or different from its owner.
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.
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.
A Sole Establishment is a legal entity exclusively owned by one individual, who is personally liable without limit to the full extent of his assets for the liabilities of the entity. This type of establishment can either conduct commercial activities or professional activities in the Emirate where it is registered. In accordance with the existing laws, only UAE nationals and nationals of GCC countries (subject to certain conditions) are permitted to form such companies for carrying out commercial activities. The commercial activities are those activities which are described in the Article 5 – 6 of the UAE Federal Law No. 18 of 1993 on Commercial Transactions. Some of these activities are trading, import-export, real estate development, manufacturing and etc.
However, expatriates are also allowed to form Sole Proprietorship only for conducting professional activities, such as medical services, engineering consultancies, management consultancies, legal consultancies, IT consultancies and similar services. The Sole Proprietorship, owned by a foreigner, should appoint a Local Service Agent in accordance with UAE laws. A Local Service Agent should be a UAE national (either individual or a company), whose primary job is to act as liaison between the company and the government entities, for example, in applying for work permits, visas etc. The relations between the principal companies and the agents are regulated by an agency agreement.
To sum up, Sole Proprietorship for carrying out commercial activities can be formed only by UAE nationals or GCC nationals (subject to certain conditions). Expatriates can form Sole Proprietorships only for providing professional and consultancy services, provided that Local Service Agent is appointed.
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You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax.