The Federal Tax Authority (FTA) has released a new Public Clarification on the VAT registration of ‘Sole Establishments’.

As defined by the FTA, the term ‘sole establishment’ refers to a legal form of business which is 100% owned by a natural person. Considering that a sole establishment does not have a legal personality that is independent of its owner, the sole establishment is considered to be the same person as its owner.

The FTA highlights that the Clarification does not apply to a One-Person Company LLC or other similar legal entities that are distinct and separate legal persons from their owners.

WHAT’S NEW?

The FTA clarifies that a natural person owning several sole establishments needs to obtain only one VAT registration for all its sole establishments. The VAT Registration in such cases should be obtained ideally in the name of the natural person who owns the sole establishment. However, it is also allowed to obtain the VAT registration in the name of one sole establishment of the person.

For assessing whether the VAT registration threshold has been exceeded, the value of taxable supplies made by the natural person and the value of taxable supplies of the sole establishment should be considered collectively.

WAY FORWARD

• Review of previously submitted VAT registrations of sole establishments

The FTA notes that if the natural person has already received separate VAT registrations for different sole establishments, the FTA will review such registrations in certain cases and will notify the registrants on the corrective steps they should take. No action is required to amend the VAT Registration unless specifically requested by the FTA.

• Ensure that taxable supplies of all sole establishments and the natural person have been declared

In light of the Public Clarification, the natural person is required to carefully analyze whether any of its sole establishments or its own taxable supplies are disregarded for VAT purposes. For instance, this may be in the case where the taxable supplies of the sole establishment have not yet reached the VAT registration threshold on a standalone basis.

If the person identifies any undeclared output VAT, it is required to inform the FTA through the submission of the Voluntary Disclosure.

• Comply with the Public Clarification for all future registration applications of Sole Establishments

Following the release of the Public Clarification, the FTA expects that all future registration applications of Sole Establishments should adhere to the Public Clarification.

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