The Federal Tax Authority (FTA) has confirmed that the first tax period for newly established companies, in relation to a juridical person subject to corporate tax, is determined by the first financial year as stipulated under the Commercial Companies Law. The Corporate Tax Law applies to tax periods starting on or after June 1, 2023, with the tax period for the taxable person being the financial year or part thereof for which a tax return is required to be filed.
This information was provided in a recent public clarification issued by the FTA to increase awareness regarding the first tax period for corporate tax for juridical persons. The clarification also addresses the timeline for tax deregistration in the event of the cessation of business or business activities before or during the first tax period.
According to the FTA, for newly established companies under the Commercial Companies Law, if the first financial year begins on or after June 1, 2023, this financial year is considered the first tax period for corporate tax purposes. If the financial year under the Commercial Companies Law is not a standard 12-month period but ranges between 6 and 18 months, the FTA will accept this period as the first tax period for corporate tax purposes. However, if the first financial year begins before June 1, 2023, the first tax period will be the subsequent 12-month financial year that begins on or after June 1, 2023, with each subsequent tax period being the 12 months following the end of the first tax period.
In a statement issued, the FTA clarified that the first tax period for a juridical person who is a taxable person is subject to the provisions of the Commercial Companies Law, a non-resident person with a permanent establishment, and a resident person who is a juridical person incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction but is effectively managed and controlled in the UAE.
The FTA stated that the taxable person’s tax period for which a tax return is required to be filed is the financial year or part thereof, according to the Corporate Tax Law. The financial year of a taxable person shall be the Gregorian calendar year or the 12-month period for which the taxable person prepares financial statements.
For juridical persons incorporated, formed, or established under the Commercial Companies Law, their first financial year under the Commercial Companies Law may not necessarily be a 12-month period, but instead can be between 6 and 18 months. The financial year followed by the taxable person under the Commercial Companies Law will be accepted as the financial year and, therefore, will be the tax period for corporate tax purposes. In such cases, the taxable person is not required to apply to the FTA to change its tax period, as this will be calculated based on the information provided during registration for corporate tax purposes. This differs from other situations where a taxable person must apply to the FTA to change its tax period.
The FTA added that if the first tax period is longer or shorter than a 12-month period, there is no pro-rating of various thresholds prescribed under the Corporate Tax Law, such as the revenue threshold for small business relief, with the exception of the de minimis threshold for the general interest deduction limitation rule, currently set at Dh12 million.
For a non-resident person with a permanent establishment in the UAE, the first tax period will be the financial year or part thereof beginning when the permanent establishment first began operations. If such activities began before June 1, 2023, the first tax period will be the first financial year commencing on or after June 1, 2023. If such activities began on or after June 1, 2023, the first tax period will be from when the non-resident person’s activities began until the end of the financial year, provided that the tax period is not less than six months or more than 18 months.
For juridical persons incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction but effectively managed and controlled in the UAE, the first tax period will be the financial year or part thereof commencing on or after June 1, 2023.
The FTA stated that if the company ceases its business or business activity, whether by dissolution, liquidation or otherwise, during the first tax period, the taxable person must apply for tax deregistration. The cessation of a taxable person’s business or business activities during its first tax period does not affect its obligation to register for corporate tax. A taxable person is still required to register for corporate tax even if the cessation occurs after the start of the first tax period. In such cases, the taxable person must submit a tax deregistration application within the deadline of three months from the deregistration-triggering event.
