The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business applies to Tax Periods commencing on or after 1 June 2023.
1 .First tax period of Juridical persons established under the Commercial Companies Law
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For tax periods beginning on or after June 1, 2023, the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is applicable.
1. First tax period of Juridical persons established under the Commercial Companies Law
• If the first Financial Year of a newly incorporated company formed under the Commercial Companies Law or other legislation like Free Zone regulations begins from its date of incorporation, if it is not less than 6 months nor more than 18 months, there is no need to apply to the Federal Tax Authority to change the Tax Period.• Subject to certain restrictions, a Taxable Person must apply to the Federal Tax Authority in order to modify the start and end dates of their Tax Period or to utilize a different Tax Period, as long as it is not shortened to less than six months or prolonged to more than eighteen months.
• According to the Commercial Companies Law, this can generally result in one of three outcomes for a recently incorporated business:
1. Its initial fiscal year lasts for twelve months, or
2. Its first fiscal year spans six to twelve months, or
3. Its initial fiscal year lasts for 12 to 18 months.
In all of the aforementioned cases, the first Tax Period under the Corporate Tax Law will begin on or after June 1, 2023, when the first Financial Year begins.
• The different thresholds outlined in the Corporate Tax Law, such as the Revenue level for Small Business Relief, are not prorated whether the first Tax Period is greater or shorter than a 12-month period. The General Interest Deduction Limitation Rule’s de minimis barrier, which is currently set at AED 12 million, is the only exemption.
2.The initial tax term for a non-resident individual who has a permanent establishment in the United Arab Emirates
Where a Non-Resident Person has a Permanent Establishment existed at 1 June 2023, the first Tax Period will be its first 12-month Financial Year commencing on or after 1 June 2023. However, the first Tax Period of such Person cannot be less than 6 months or more than 18 months.
The first Tax Period of the Permanent Establishment of the Non-Resident would be as above, despite the following principles which apply in relation to when a Permanent Establishment is recognized as such for Corporate Tax purposes:
- Where the Permanent Establishment exists by virtue of a fixed place of Business in the UAE, then for Corporate Tax purposes, such Permanent Establishment would only be treated as having come into existence once it has been operational for six months from the start of Corporate Tax, subject to the provisions of any applicable Double Taxation Agreement.
- Thus, such Permanent Establishment would only be considered as existing on 1 December 2023 (because six months have passed to indicate permanence), but with effect from 1 June 2023 subject to the provisions of any applicable Double Taxation Agreement.
- Alternatively, where the Permanent Establishment exists by virtue of a Person habitually exercising an authority to conduct Business or Business Activity on behalf of the Non-Resident Person (dependent agent situation), then the Permanent Establishment is considered to exist on 1 June 2023 (i.e. because it was operational when Corporate Tax was implemented).
3. A resident’s first tax period under efficient management and supervision in the United Arab Emirates
The first tax period will be the financial year or a portion of it, starting on or after June 1, 2023, in cases where a juridical person is incorporated, otherwise established, or recognized under the applicable laws of a foreign jurisdiction but is a resident person due to their effective management and control in the United Arab Emirates.
Prior to or during the First Tax Period, cessation
• The expiration of a license or the absence of a valid license does not, by itself, constitute cessation of business; dissolution, liquidation, or other termination of a Taxable Person’s business or business activities during its first Tax Period does not affect the Taxable Person’s obligation to register for Corporate Tax; that is, 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 these situations, a Taxable Person must nevertheless file an application for tax deregistration within three months after the deregistration triggering event.
Application deadlines for tax deregistration in cases when an individual stops operating their business prior to or during the first tax period
• The first Tax Period will end on the cessation date if a Taxable Person stops conducting business during the first Tax Period. Such an individual must deregister within the allotted time frame, which is three months from the date of discontinuation.
• A taxable person must register before applying for tax deregistration, and they must be sure to register in advance to give themselves enough time to meet the tax deregistration deadline. If this is not done, there may be administrative sanctions.
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