The first tax period of a company is not necessarily 12 months.

The Federal Tax Authority confirmed that the first tax period for a newly established company of a legal person subject to corporate tax depends on the first fiscal year under the Commercial Companies Law, explaining that this period is not necessarily 12 months, as it can range between six months and 18 months.

She explained that the Corporate Tax Law applies to tax periods starting on or after June 1, 2023, and the tax period for the taxable person is the fiscal year or part thereof for which a tax return must be submitted.

This came in a new general clarification issued by the Authority to raise awareness of the first tax period for corporate tax for legal persons, which also addresses the time period for cancelling tax registration in the event of ceasing to practice business or business activities before or during the first tax period.

According to the clarification, for newly established companies under the Commercial Companies Law, if the first fiscal year begins on or after June 1, 2023, this fiscal year shall be considered the first tax period for corporate tax purposes.

If the fiscal year under the Commercial Companies Law does not represent a period of 12 months, but ranges between six months and 18 months, the Federal Tax Authority accepts this period as the first tax period for corporate tax purposes.

However, if the first fiscal year begins before June 1, 2023, the first tax period shall be the subsequent 12-month fiscal year beginning on or after June 1, 2023, and each subsequent tax period shall be the 12-month period following the end of the first tax period.

The Authority stated in a statement yesterday that the new general clarification aims to shed light on the first tax period for corporate tax purposes, in relation to a legal person that is subject to tax and is subject to the provisions of the Commercial Companies Law, a non-resident person that is a legal person with a permanent establishment, and a resident legal person that is established, created or otherwise recognized under the legislation of another country, and that is effectively managed and controlled in the UAE.

The general clarification indicated that the tax period for which the taxable person must submit his tax return is the fiscal year or part thereof, according to the Corporate Tax Law. The taxable person’s fiscal year is the calendar year or the 12-month period for which the taxable person prepares his financial statements.

He added that with regard to legal persons that have been established, formed or created under the Commercial Companies Law, their first financial year does not necessarily have to be a period of 12 months, but it can be a period ranging from six months to 18 months, as the financial year followed by the taxable person under the Commercial Companies Law is accepted as the financial year, and therefore it will be the tax period for corporate tax purposes.

He explained that in such a case, the taxable person does not have to submit any request to the Authority to change his tax period, but rather the tax period is calculated based on the information provided upon registration for corporate tax purposes, unlike other cases in which the taxable person must submit a request to the Authority to change his tax period.

He pointed out that if the first tax period is longer or shorter than the 12-month period, there will be no proportional allocation of the various limits stipulated under the Corporate Tax Law, such as the revenue limit for small business facilities, and the only exception will be the minimum limit for the purposes of the general rule for interest deduction restrictions (currently set at AED 12 million).

• The Corporate Tax Law applies to tax periods beginning on or after June 1, 2023.

Non-resident person

The Federal Tax Authority stated that for a non-resident person who has a permanent establishment in the country, his first tax period shall be the fiscal year or part thereof starting from the time the permanent establishment first commenced its activity. If these activities commenced before June 1, 2023, the first tax period shall be the first fiscal year starting on or after June 1, 2023.

It explained that if a legal person is established, created or otherwise recognised under the legislation of another country or foreign territory, but is considered a resident person on the basis that it is effectively managed and controlled in the country, the first tax period shall be the fiscal year, or part thereof, that begins on or after June 1, 2023.

cease to carry on business

The Federal Tax Authority stated that if a company ceases to conduct business or business activity, whether as a result of dissolution, liquidation, or for any other reasons, during the first tax period, the taxable person must submit a request to cancel the tax registration.

It explained that the taxable person’s cessation of business or business activities during his first tax period does not affect his obligation to register for corporate tax, meaning that the taxable person must still register for corporate tax even if he ceases to conduct business after the start of the first tax period. In such cases, the taxable person must still submit a request to cancel the tax registration within a period not exceeding three months from the occurrence of the event that results in cancellation of registration.