Revealed: 8 factors key for company liquidation in the UAE

Covid-19 induced economic uncertainties are a reality in the current business landscape.

The UAE government’s proactive stimulus packages have been successful in limiting its impact, but some companies have fallen prey to the pandemic. Companies such as Sprii and Gulf Greetings Trading closed their operations in the UAE due to cashflow problems. Firms that decide to wind up their operations usually file for voluntary liquidation in the UAE, which allows them to exit gracefully by settling their debts and other liabilities.

However, regulatory compliance requirements such as VAT, Ultimate Beneficial Ownership (UBO), and Economic Substance Regulations (ESR) have made it critical for companies to plan their liquidation well-ahead.

Here are eight important factors that every entrepreneur must keep in mind before initiating company liquidation in the UAE:

1) Board resolution

Companies in the UAE often go into liquidation upon completion of their objective, expiry of duration or due to the loss of their assets. Liquidation is a highly streamlined process, which requires the companies to ensure compliance with the regulations of the relevant licensing authorities. After finalising on the decision to wind up the company, the shareholders formally initiate the liquidation process by passing a board resolution.

2) Appointment of liquidator

A liquidator must be appointed by the board of directors through a resolution. The entire process of liquidation will be carried out by the company liquidator, usually a reputed audit firm with sufficient experience in the UAE. After the liquidator submits a confirmation letter and assumes charge of the company liquidation process, the powers of the board cease.

3) Notification for liquidation

The company needs to publish the notification of the liquidation in two local newspapers. The newspaper notice is intended to provide the debtors a grace period of 45 days from the date of issue to submit their claims.

4) VAT de-registration

Companies that are VAT-registered must file for de-registration to successfully complete the liquidation process. The Federal Tax Authority mandates that companies must file for de-registration within 20 business days of becoming eligible for the process. A fine of Dhs10,000 will be imposed if companies fail to de-register their VAT account within the stipulated time.

Unfortunately, failing to file for VAT de-registration is a common mistake committed by companies under liquidation, causing delays at the time of winding up the company.

5) Close branches and subsidiaries

Shareholders must also ensure that the company’s branches and subsidiaries are closed before the passage of the board resolution. Once the parent company is liquidated, it becomes difficult for the management to shut down the subsidiaries and branches because a board resolution is mandatory for branch liquidation.

6) Submission of UBO register

Companies in the UAE are now required to comply with the Ultimate Beneficial Ownership (UBO) disclosure requirements. As per UBO regulations, companies must maintain a Real Beneficiary Register (RBR). For companies under liquidation, the liquidator is required to submit a true copy of the updated UBO register to the registrar within 30 days of the liquidator’s appointment.

7) Economic Substance Regulations (ESR)

Companies under liquidation have to comply with Economic Substance Regulations (ESR) if they are classified as a ‘relevant activity’ [banking, insurance, investment fund management, lease finance, shipping, holding company, Intellectual Property (IP), distribution and service centres].

During the course of the liquidation process, the liquidator should ensure that the entity is meeting ESR obligations. The company under liquidation must also ensure ESR standards are maintained for any period during which it carries on a relevant activity and derives relevant income.

8) Submission of liquidation report

At the final stage of company liquidation in the UAE, the official liquidator will submit the liquidation report to the licensing authority. Before the submission of the report, the liquidator should ensure that the company has closed its bank accounts and cancelled visas of all its employees. In case the report contains the financial statement from the previous financial year, the signature of the shareholder/director must be included in the statement.

Partner with the best company liquidators in Dubai

Company liquidation in the UAE is a long and complex process that requires expert assistance. With the introduction of VAT, UBO and ESR, the process has become more elaborate. Devising a robust liquidation strategy is inevitable to ensure compliance with the regulations. Experienced company liquidators in Dubai, such as Jitendra Business Consultants (JBC), assist investors in winding up their companies in compliance with all the relevant regulations. Our team assist the companies in all stages of the voluntary liquidation process and regularly serve as liquidators of solvent companies initiating and finalising liquidations in a timely manner.