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
- Application to the Federal Tax Authority to change the Tax Period is not required if the first Financial Year of a newly incorporated company formed under Commercial Companies Law or other legislation like Free Zone regulations starts from its date of incorporation, if it is not less than 6 months and not more than 18 months.
- Application to the Federal Tax Authority is required if a Taxable Person wants to change the start and end date of its Tax Period, or use a different Tax Period, subject to certain conditions, provided that the Tax Period is not extended to more than 18 months, nor reduced to less than 6 months.
- This can broadly lead to one of three scenarios for a newly incorporated company under the Commercial Companies Law:
- its first Financial Year is a 12-month period, or
- its first Financial Year is a period between 6 and 12 months, or
- its first Financial Year is a period between 12 and 18 months
In all the above scenarios, where the first Financial Year commences on or after 1 June 2023, this will be the first Tax Period under the Corporate Tax Law.
- Where 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, for example 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).
2. First tax period of Non-Resident Person with a Permanent Establishment in the UAE
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. First Tax Period of a Resident Person with effective management and control in the UAE
Where a juridical person is incorporated or otherwise established or recognized 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.
Cessation before or during First Tax Period
- The cessation of a Taxable Person’s Business or Business Activities, whether by dissolution, liquidation, or otherwise, 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.
- The expiry of a License or the lack of a valid License does not, by itself, constitute cessation of Business
- 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.
Timelines to apply for Tax Deregistration where the Person ceases Business before or during the first Tax Period
- Where a Taxable Person ceases their Business Activities during the first Tax Period, their first Tax Period will come to an end on the cessation date. Such a Person should deregister within the timeline prescribed, that is within 3 months from the date of cessation.
- A taxable Person must be registered before filing Tax Deregistration application and must ensure that they have registered in time, to allow for sufficient time to comply with the deadline for Tax deregistration.
- Failure to do so can result in administrative penalties.