Public Clarification on First Tax Period of a Juridical Person
12 August 2024 - On 30 July, the Federal Tax Authority (FTA) in the United Arab Emirates (UAE) issued a public clarification regarding the First Tax Period of a Juridical Person for the purposes of the Federal Decree Law No. 47 of 2022 (UAE CT Law).
In terms of Article 57(1) of the UAE CT Law, the Tax Period of a Taxable Person shall be the ‘Financial Year or part thereof’ for which a tax return is required to be filed. The ‘Financial Year’ is further defined to mean the Gregorian calendar year, or the 12-month period for which the Taxable Person prepares financial statements.
The first Financial Year of a Juridical Person may not necessarily be a 12-month period. Under the Commercial Companies Laws in the UAE, the first Financial Year could be a period between 6 to 18 months. The UAE CT Law was silent on situations where the Financial Year of a Juridical Person was different than a 12-month period.
This issue, along with some related matters, have now been addressed in the clarification with practical examples, and are summarized below.
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First Financial Year begins before 1 June 2023 |
The First Tax period will be the subsequent 12
By way of example, if a company is incorporated |
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In any of the above scenarios, where the First Tax period is not a 12-month period but a period between 6 months and 18 months, the entity is not required to make any application to the FTA to change its Tax Period.
Also, where the First Tax Period is longer or shorter than a 12-month period, Taxable Persons are not required to apply a time-based apportionment approach with respect of the thresholds prescribed under the UAE CT Law. The only exception is the AED 12 million limit with respect to the General Interest Deduction Limitation Rule.
First Tax period in case of Resident Person with effective management and control in the UAE:
Where a Juridical Person is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction but is a Resident Person in UAE by virtue of being effectively managed and controlled in the UAE, the First Tax Period will be the Financial Year or part thereof commencing on or after 1 June 2023.
Timelines to apply for Tax Deregistration where the Person ceases their Business or Business Activities before or during the First Tax Period:
The cessation of a Taxable Person’s Business or Business Activities during its First Tax Period does not impact its obligation to register for Corporate Tax, i.e., a Taxable Person is still required to register for Corporate Tax even where there is a cessation of its Business or Business Activities during its First Tax Period.
As an example, a company was incorporated in 2020 with a Financial Year from 1 September to 31 August. For Corporate Tax purposes, its First Tax Period would be from 1 September 2023 to 31 August 2024. However, if the Business was closed and the company ceased to exist on 25 July 2023, i.e., before the commencement of the First Tax Period, then it is not required to register for Corporate Tax. However, if the Company was liquidated after the start of its First Tax Period, for example, in May 2024, then obtaining registration for UAE CT Law is a must to comply with filing obligation for the first tax period, before a deregistration could be applied for.
Please note that the deregistration should occur withing 3 months of the date of the cessation.
A Taxable Person must be registered before filing a Tax Deregistration application. Therefore, the Taxable Person must ensure that they have registered in time, to allow for sufficient time to comply with the deadline for Tax Deregistration which is 3 months from the date of cessation. Failure to do so can result in administrative penalties.
Key takeaways
The clarification from the FTA addresses questions surrounding the first taxable period in specific situations, such as when a company is set up after 1 June 2023 or when the existence of a permanent establishment of a non-resident is concerned. This is a welcome step from the FTA and will assist taxpayers in accurately determining their tax liabilities for the period covered by the first tax year.
Contacts
We have a dedicated Business Tax team based in the UAE who have in-depth experience and can support you throughout your readiness journey. Please get in touch with one of our tax experts listed on the following page.
You can also contact us and submit all your queries on this email cituae@deloitte.com.
