To assist businesses in navigating this new landscape, the Federal Tax Authority (FTA) has issued a Public Clarification outlining key details regarding the first Tax Period, financial year variations, and deregistration procedures.
Additionally, the FTA has announced a postponement of the deadline to file Tax Returns and settle Corporate Tax Payable for businesses with short Tax Periods ending on or before 29th February 2024. Under FTA Decision No. 7 of 2024, the new deadline is extended to 31st December 2024. This decision aims to support businesses in meeting their first Corporate Tax obligations smoothly while ensuring compliance with the Corporate Tax Law.
Key Highlights of the Public Clarification
1. Determining the First Tax Period
- The first Tax Period for a juridical person subject to Corporate Tax is determined based on its first Financial Year, as defined under the UAE Commercial Companies Law.
- The Corporate Tax Law applies to Tax Periods commencing on or after 1 June 2023.
- The Tax Period for a Taxable Person is the Financial Year or part thereof for which a Tax Return must be filed.
2. Application of Corporate Tax for Different Business Entities
The Public Clarification confirms that the first Tax Period applies to:
- Resident juridical persons incorporated, established, or recognized under UAE laws.
- Non-resident juridical persons with a Permanent Establishment in the UAE.
- Foreign juridical persons that are effectively managed and controlled in the UAE.
For Non-Resident Persons with a Permanent Establishment, the first Tax Period:
- Begins when the entity starts operations in the UAE.
- If operations began before 1 June 2023, the first Tax Period is the first Financial Year commencing on or after 1 June 2023.
- If operations began on or after 1 June 2023, the first Tax Period starts from when the business began operating and ends at the close of its first Financial Year.
3. Financial Year and Tax Period Alignment
- A Taxable Person’s Tax Period aligns with their Financial Year, which is either the Gregorian calendar year or a 12-month financial reporting period.
- In cases where a company’s first Financial Year is between 6 and 18 months, the FTA automatically accepts this as the first Tax Period without requiring a separate application.
4. Filing Deadline Postponement for Short Tax Periods (Updated as per FTA Decision No. 7 of 2024)
To assist businesses in managing their initial Corporate Tax filings, the FTA has issued FTA Decision No. 7 of 2024, introducing a special extension for businesses with short Tax Periods ending on or before 29th February 2024.
1. Extended Filing and Payment Deadline
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- The new deadline for filing Corporate Tax Returns and settling Corporate Tax Payable is 31st December 2024.
- This applies to businesses incorporated on or after 1 June 2023 that have a first Financial Year ending on or before 29th February 2024, resulting in a first Tax Period shorter than 12 months.
2. Businesses Affected by the Postponement
The Decision applies to companies with a Financial Year ending on or before 29th February 2024.
Example – A company incorporated on 10th June 2023, with a Financial Year running from 1st January to 31st December, would have had a filing deadline of 30th September 2024. However, under FTA Decision No. 7 of 2024, the new deadline is now 31st December 2024.
3. Objective of the Postponement
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- The FTA recognizes the administrative challenges faced by businesses with a short first Tax Period.
- The extended deadline provides additional time for businesses to ensure accurate filings and avoid compliance pressure.
5. Tax Deregistration in Case of Business Cessation
- If a company ceases operations during its first Tax Period (through dissolution, liquidation, or other means), it must still register for Corporate Tax and apply for Tax Deregistration.
- The Tax Deregistration application must be submitted within three months from the date of cessation.
Conclusion
The FTA’s Public Clarification and Decision No. 7 of 2024 provide critical guidance for businesses navigating their first Corporate Tax filing. These measures ensure that companies, particularly those with shorter Tax Periods, have sufficient time to prepare, file their Tax Returns, and fulfil their Corporate Tax obligations.
With the first Corporate Tax filing deadline approaching, it is essential for businesses to stay updated on regulatory changes, align their financial years correctly, and ensure timely compliance to avoid penalties.
How We Can Help
Navigating the first Corporate Tax filing can be complex, especially for newly established businesses and those with short Tax Periods. Our team is here to assist you with:
Understanding your first Tax Period and its implications.
✔ Ensuring compliance with UAE Corporate Tax laws and FTA guidelines.
✔ Providing tax planning strategies to optimize your tax obligations.
✔ Handling tax registration, filings, and deregistration procedures.
✔ Advising on the impact of Corporate Tax on your business structure and financial planning.
If you need personalized assistance in preparing for your first Corporate Tax filing, contact us today to ensure a smooth and compliant tax process.
