What if Sole Establishment is converted to a LLC ? (UAE VAT and Corporate Tax).

A Sole Establishment and an LLC are distinct legal entities with separate compliance, registration, and deregistration requirements. When a Sole Establishment transitions to an LLC in the UAE, it’s not just a status change but a full shift to a new legal entity.

Below is a breakdown of the mandatory compliance steps for VAT and Corporate Tax when making this transition.

1. VAT Compliance (Value Added Tax)

For Sole Establishment (Before LLC Transition)
If the Sole Establishment is VAT-registered, it must deregister from VAT when ceasing business operations. Submit a VAT Deregistration Request through the Federal Tax Authority (FTA) portal within 20 business days from cessation. Settle any outstanding VAT liabilities and ensure all VAT returns are filed. Pay any penalties (if applicable) for late deregistration.

For LLC (After Transition)
The LLC must register separately for VAT if,
Annual taxable turnover exceeds AED 375,000 (mandatory registration).
Annual taxable turnover exceeds AED 187,500 (voluntary registration).
The LLC must obtain a new TRN (Tax Registration Number). All invoices, contracts, and transactions must be under the LLC’s new legal identity.
The LLC must file VAT returns separately from the sole establishment.

2. Corporate Tax Compliance

For Sole Establishment (Before LLC Transition)
If the Sole Establishment was registered for Corporate Tax, it must deregister upon cessation. Submit a Corporate Tax Deregistration Request through the FTA. File the final corporate tax return covering the period up to business closure. Settle any outstanding tax dues before deregistration.

For LLC (After Transition)
The LLC must register for Corporate Tax as a new entity. (If eligible, the LLC can apply for Small Business Relief (for revenue below AED 3 million)).

Key Takeaways

Sole Establishment and LLC are completely separate entities.
Deregister Sole Establishment from VAT, Corporate Tax, and relevant authorities. LLC must apply for new tax registrations separately.

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.