Federal Tax Authority issues Public Clarification on Corporate Tax to raise awareness of the first Tax Period for a juridical person
Abu Dhabi - 13 August 2024: The Federal Tax Authority (FTA) confirmed that the first Tax Period of a newly established company, in respect of 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 commencing on or after 1 June, 2023, and the Tax Period for the Taxable Person is 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 Public Clarification also addresses the timeline for Tax Deregistration in case of the cessation of Businesses or Business Activities before or during the first Tax Period.
The FTA issues Public Clarifications to enhance tax awareness among business sectors and achieve optimal tax compliance. The Public Clarification can be accessed by clicking on the link: First Tax Period of a Juridical Person.
According to the Public Clarification issued by the FTA, for newly established companies under the Commercial Companies Law, if the first Financial Year begins on or after 1 June 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 accepts this period as the first Tax Period for Corporate Tax purposes. However, if the first Financial Year begins before 1 June 2023, the first Tax Period will be the subsequent 12-month Financial Year that begins on or after 1 June, 2023, with each subsequent Tax Period being the 12 months following the end of the first Tax Period.
The FTA stated in a press statement issued today that the new Public Clarification aims to shed light on the first Tax Period for Corporate Tax purposes. It clarified that the first Tax Period for a juridical person that is a Taxable Person which is subject to the provisions of the Commercial Companies Law, a Non-Resident Person who is a juridical person who has a Permanent Establishment, and a Resident Person that is a juridical person incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE.
The Public Clarification has indicated that a 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.
In respect of juridical persons that are 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 a period between 6 months and 18 months, where the Financial Year followed by the Taxable Person under the Commercial Companies Law shall be accepted as the Financial Year and, therefore, will be the Tax Period for Corporate Tax purposes.
In such circumstances, the Taxable Person is not required to make an application to the FTA to change its Tax Period. Instead, this will be calculated based on the information provided upon its registration for Corporate Tax purposes. This is unlike other situations where a Taxable Person is required to make an application to the FTA to change its Tax Period.
The Public Clarification added that if the first Tax Period is longer or shorter than a 12-month period, there is no pro-rating of the various thresholds prescribed under the Corporate Tax Law, such as the Revenue threshold for Small Business Relief. The only exception is the de minimis threshold for the purposes of the General Interest Deduction Limitation Rule (currently set at AED 12 million).
According to the Public Clarification, for a Non-Resident Person who has a Permanent Establishment in the UAE, the first Tax Period will be the Financial Year or part thereof beginning from when the Permanent Establishment first began operations. Where such activities began before 1 June 2023, the first Tax Period will be the first Financial Year commencing on or after 1 June 2023.
However, where such activities began on or after 1 June 2023, the first Tax Period will be from when the Non-Resident Person’s activities began (i.e. from when it started operating) until the end of the Financial Year of the Non-Resident Person, provided that the Tax Period is not less than 6 months or more than 18 months.
When a juridical person is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction but is a Resident Person 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.
The Public Clarification 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 is required to make an application for Tax Deregistration. 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 the cessation takes place after the start of the first Tax Period. In such cases, a Taxable Person is still required to submit a Tax Deregistration application within the deadline of 3 months from the Deregistration triggering event.