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Document Type: PC - Public Clarification
Guidance Code: CTP003
Year: 2024
Related Law: uae-cit-fdl-47-of-2022
Authority: Federal Tax Authority

First Tax Period of a juridical person - CTP003

CTP003 - First Tax Period of a juridical person

CTP003

Corporate Tax Public Clarification

First Tax Period of a juridical person

Issue

The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, and its amendments ("Corporate Tax Law") applies to Tax Periods commencing on or after 1 June 2023. [1]

Under the Corporate Tax Law, a Taxable Person's Tax Period is the Financial Year or part thereof for which a Tax Return is required to be filed. [2]

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. [3]

The Corporate Tax Law does not provide a specific provision for the first Financial Year of a juridical person that is a Taxable Person.

This Public Clarification is intended to clarify the first Tax Period under the Corporate Tax Law for:

  • a juridical person that is a Taxable Person and is subject to the provisions of the Commercial Companies Law.

  • a Non-Resident Person who is a juridical person who has a Permanent Establishment.[4]

  • a Resident Person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE. [5]

In addition, the Public Clarification addresses the timeline for Tax Deregistration in case of the cessation of Business or Business Activities before or during the first Tax Period.

Summary

Juridical persons which are incorporated, formed or established under the Commercial Companies Law.

The Federal Decree-Law No. 32 of 2021 on Commercial Companies ("Commercial Companies Law") applies to commercial companies established in the UAE (including a Joint Liability Company, Limited Partnership Company, Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company) and to foreign incorporated companies that establish their head office or a branch or representative office in the UAE. [6] [7] [8]

The 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. [9]

Where a juridical person which is a Taxable Person is formed under other legislation, such as Free Zone regulations, which nonetheless has the same requirements for the first Financial Year as the Commercial Companies Law, the same analysis provided by this Public Clarification shall apply.

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 the Corporate Tax Law.

Where, as a result, the first Tax Period of such Taxable Person is not a 12-month period but a period between 6 months and 18 months, the Taxable Person is not required to make any application to the FTA to change its Tax Period.

This is unlike other situations where a Taxable Person is required to make an application to the FTA to change the start and end date of its Tax Period. [10]

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).

Non-Resident Person with a Permanent Establishment in the UAE

Where a Non-Resident Person has a Permanent Establishment, 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.

Resident Person effectively managed and controlled in the UAE

Where 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.

Cessation before or during first Tax Period

Where there is a cessation of 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. [11]

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.

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. [12]

Detailed analysis

First Tax Period for juridical persons which are incorporated, formed or established under the Commercial Companies Law

Under Article 28 of the Commercial Companies Law, the Financial Year of a company is determined in its statute/constitution (e.g. articles of association), such that the first Financial Year of a newly incorporated company starting from its date of incorporation must be not less than 6 months and not more than 18 months. [9]

The subsequent Financial Years shall consist of consecutive periods, each of 12 months commencing directly upon the expiry of the preceding Financial Year.9 The company shall prepare Financial statements for each Financial Year.

The Corporate Tax Law is applicable to Tax Periods commencing on or after 1 June 2023. [1] A Taxable Person's Tax Period is the Financial Year or part thereof for which a Tax Return is required to be filed. [2]

For a juridical person which is a Taxable Person, the Financial Year shall be the Gregorian calendar year, or the 12-month period for which it prepares financial statements. [3] However, a Taxable Person can make an application to the FTA 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. [10]

Thus, the Tax Period depends on the Financial Year for which the Taxable Person prepares financial statements unless a different basis has been approved by the FTA.

Where a juridical person is subject to the Commercial Companies Law, it will prepare its financial statements for the first financial year determined as per the Commercial Companies Law.

Hence, the first Tax Period of a newly incorporated company will depend on the first financial year under the Commercial Companies Law.

This can broadly lead to one of three scenarios for a newly incorporated company under the Commercial Companies Law:

  1. its first Financial Year is a 12-month period, or
  2. its first Financial Year is a period between 6 and 12 months, or
  3. its first Financial Year is a period between 12 and 18 months.

In all of 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, under the Commercial Companies Law, the Financial Year is not a 12-month period but a period between 6 months and 18 months (i.e. scenarios 2 and 3 above), the FTA shall accept such period as the first Tax Period for the purposes of the Corporate Tax Law, without the Taxable Person being required to make an application to the FTA in relation to such first Tax Period.

However, where the first Financial Year commences before 1 June 2023, the first Tax Period will be the subsequent 12-month Financial Year commencing on or after 1 June 2023.

Each subsequent Tax Period will be the 12-month period following from the end of the first Tax Period.

No application is required to be submitted to the FTA for a change in the subsequent Tax Period if the difference in length is solely because it follows the end of the first Tax Period which may have been more or less than 12 months, i.e. scenarios 2 and 3 above.

If the change is for a different reason, an application should nonetheless be submitted.

Example 1

  • A company is incorporated on 1 February 2023 with a Financial Year corresponding to the calendar year (from 1 January to 31 December).

    Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 1 February 2023 to 31 December 2023 (11 months) and the first financial statements for this company will be prepared for the same period.

    Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be from 1 January 2024 to 31 December 2024, since this is the first Financial Year commencing on or after 1 June 2023. Subsequent Tax Periods will be the subsequent Gregorian calendar years.

  • A company is incorporated on 1 February 2023 with a Financial Year of 1 April to 31 March.

    Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 1 February 2023 to 31 March 2024 (14 months) and the first financial statements for this company will be prepared for the same period.

    Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be from 1 April 2024 to 31 March 2025, since this is the first Financial Year commencing on or after 1 June 2023.

    Subsequent Tax Period will be from 1 April 2025 to 31 March 2026 and thereafter for the same 12-month periods.

  • A company is incorporated on 1 February 2023 with a Financial Year of 1 September to 31 August.

    Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 1 February 2023 to 31 August 2023 (7 months) and the first financial statements for this company will be prepared for the same period.

    Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be from 1 September 2023 to 31 August 2024, since this is the first Financial Year commencing on or after 1 June 2023.

    Subsequent Tax Periods will be from 1 September 2024 to 31 August 2025 and thereafter for the same 12-month periods.

Example 2

  • Where the Financial Year corresponds to the calendar year (from 1 January to 31 December):

    1. A company is incorporated on 5 June 2023: Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 5 June 2023 to 31 December 2023 (6 months and 26 days) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 5 June 2023 to 31 December 2023).

      Subsequent Tax Periods will be the subsequent Gregorian calendar years.

    2. A company is incorporated on 16 August 2023:

      Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 16 August 2023 to 31 December 2024 (16 months and 16 days) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 16 August 2023 to 31 December 2024).

      Subsequent Tax Periods will be the subsequent Gregorian calendar years.

  • Where the Financial Year is 1 April to 31 March

    1. A company is incorporated on 11 June 2023:

      Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 11 June 2023 to 31 March 2024 (9 months and 20 days) (i.e. from 11 June 2023 to 31 March 2024) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 11 June 2023 to 31 March 2024). Subsequent Tax Period will be from 1 April 2024 to 31 March 2025 and thereafter for the same 12-month periods.

    2. A company is incorporated on 2 January 2024:

      Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 2 January 2024 to 31 March 2025 (14 months and 30 days) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 2 January 2024 to 31 March 2025).

      Subsequent Tax Period will be from 1 April 2025 to 31 March 2026 and thereafter for the same 12-month periods.

  • Where the Financial Year is 1 September to 31 August:

    1. A company is incorporated on 6 July 2023: Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 6 July 2023 to 31 August 2024 (13 months and 26 days) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 6 July 2023 to 31 August 2024). Subsequent Tax Period will be from 1 September 2024 to 31 August 2025 and thereafter for the same 12-month periods.

    2. A company is incorporated on 20 December 2023:

      Under Article 28 of the Commercial Companies Law, the first Financial Year of the company will be from 20 December 2023 to 31 August 2024 (8 months and 12 days) and the first financial statements for this company will be prepared for the same period.

      Where this company is a Taxable Person under the Corporate Tax Law, its first Tax Period will be the same as the first Financial Year under the Commercial Companies Law (from 20 December 2023 to 31 August 2024). Subsequent Tax Period will be from 1 September 2024 to 31 August 2025 and thereafter for the same 12-month periods.

Impact of first Tax Period being longer or shorter than 12-month period on thresholds provided under the Corporate Tax Law

Where the first Tax Period is longer or shorter than a 12-month period, Taxable Persons should not apply a pro-rata approach in respect of the thresholds prescribed under the Corporate Tax Law.

This is because these thresholds apply in respect of each "Tax Period".

The thresholds remain the same as indicated in the relevant provisions of the Corporate Tax Law and its implementing decisions regardless of whether the first Tax Period is longer or shorter than 12 months.

By way of example, a pro rata approach should not be applied to the following thresholds where the first Tax Period of the Taxable person is more or less than 12 months:

  • Taxable Income of AED 375,000 which is subject to 0% Corporate Tax in each Tax Period of a Taxable Person that is not a Qualifying Free Zone Person, [13]

  • eligibility for Small Business Relief which requires that the Taxable Person's Revenue for the relevant Tax Period and previous Tax Periods does not exceed AED 3 million for each Tax Period, [14]

  • requirement to prepare and maintain audited financial statements for the Tax Period where the Revenue for such Tax Period exceeds AED 50 million, [15]

  • requirement to prepare master file and local file for the Tax Period where the Taxable Person is a constituent entity of a Multinational Enterprises group which has consolidated group Revenue of AED 3.15 billion or more in such Tax Period, or the Taxable Person's Revenue in such Tax Period exceeds AED 200 million, [16]

  • eligibility to prepare financial statements for the Tax Period using the Cash Basis of Accounting which requires that the Revenue of the Taxable Person in such Tax Period does not exceed AED 3 million, [17]

  • eligibility to prepare financial statements for the Tax Period using International Financial Reporting Standards for small and medium- sized entities (IFRS for SMEs) which requires that the Revenue of the Taxable Person in such Tax Period does not exceed AED 50 million, [18]

  • de-minimis requirement to qualify as a Qualifying Free Zone Person which requires that non-qualifying Revenue in a Tax Period does not exceed 5% of the total Revenue of the Qualifying Free Zone Person or AED 5 million, whichever is lower. [19]

An exception to the general principle as set out in the above examples relates to the non- applicability of the General Interest Deduction Limitation Rule.

Normally, there is no interest limitation if the Net Interest Expenditure in a Tax Period does not exceed AED 12 million. [20]

However pro-rating of this threshold is provided by Article 8(3) of Ministerial Decision No. 126 of 2023 which states that where the relevant Tax Period of a Taxable Person is more or less than 12 months, the de-minimis limit for applicability of General Interest Deduction Limitation Rule (i.e. AED 12 million) shall be adjusted in proportion to the length of the Tax Period.

First Tax Period of a Non-Resident Person with a Permanent Establishment

Where a Non-Resident Person has a Permanent Establishment and its activities which constituted 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.

Where a Permanent Establishment of a Non-Resident is created on or after 1 June 2023, its first Tax Period will be the period from when it began operations until its first-year end as per its Financial Statements.

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 explained above, despite the following principles which apply in relation to when a Permanent Establishment is recognised 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. Note, all other factors to indicate the existence of a Permanent Establishment 17/31 must exist.

  • 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).

Example 3

A Non-Resident Person has had a fixed place of Business in the UAE through which it has operated since 1 February 2022 and it continues to operate for the foreseeable future. The fixed place of Business was operating in the UAE at 1 June 2023.

On 1 December 2023, the Non-Resident Person's fixed place of Business establishes a degree of permanence so a Permanent Establishment exists.

The Non-Resident Person's Financial Year is the 12-month period from 1 February to 31 January, so its first Tax Period for Corporate Tax purposes will be 1 February 2024 to 31 January 2025. Thereafter, the Tax Periods will be the 12-month period from 1 February to 31 January of each year.

Example 4

A Non-Resident Person has had a Person habitually exercising an authority to conduct Business or Business Activity on behalf of the Non- Resident Person since 1 March 2021. On 1 June 2023, this constitutes a Permanent Establishment for the Non-Resident Person.

The Non-Resident Person's Financial Year is the 12-month period from 1 March to 28/29 February, so its first Tax Period for Corporate Tax purposes will be 1 March 2024 to 28 February 2025.

Thereafter, the Tax Period will be the 12-month period from 1 March to 28/29 February for each year.

In line with the above two examples, if the Non- Resident person has a Permanent Establishment from 1 June 2023, however, in contrast, the Non- Resident Person's Financial Year is the 12-month period from 1 September to 31 August, then their first Tax Period for Corporate Tax purposes will be 1 September 2023 to 31 August 2024.

Thereafter, the Tax Period will be the 12-month period from 1 September to 31 August of each year.

If a Non-Resident Person starts a fixed place of Business after 1 June 2023, a Permanent Establishment would only be seen to exist 6 months from when the activities began, but with effect from when such activities began.

Also, where a Non-Resident Person had or has a Permanent Establishment by virtue of a Person habitually exercising an authority to conduct Business or Business Activity on behalf of the Non- Resident Person, then the Permanent Establishment will be considered to exist immediately.

In these cases, the Non-Resident Person's 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.

Example 5

On 1 August 2024, a Non-Resident Person creates a branch (a fixed place of Business) in the UAE through which it operates and continues to operate for the foreseeable future. After 6 months (1 February 2025), the Permanent Establishment exists.

The Non-Resident Person's Financial Year is the 12-month period from 1 January to 31 December.

The first Tax Period will be 1 August 2024 to 31 December 2025. Thereafter, the Tax Period will be the 12-month period from 1 January to 31 December of each year.

Example 6

On 5 May 2024, a Non-Resident Person is considered to have a Permanent Establishment by virtue of a Person habitually exercising an authority to conduct Business or Business Activity on behalf of the Non-Resident Person.

The Non-Resident Person's Financial Year will be the 12-month period from 1 May to 30 April.

Such activities constitute an existence of a Permanent Establishment on 5 May 2024. The first Tax Period will be 5 May 2024 to 30 April 2025. Thereafter, the Tax Period will be the 12- month period from 1 May to 31 April of each year.

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 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. [5]

Example 7

A company incorporated in a country other than the UAE has a Financial Year of 1 January to 31 December, a 12-month period.

With reference to all facts and circumstances, the company determined that, for the period 1 January 2024 to 31 December 2024, it was effectively managed and controlled in the UAE, and is therefore a Resident Person.

The Resident Person's first Tax Period will be from 1 January 2024 to 31 December 2024, being the first Tax Period commencing on or after 1 June 2023.

Example 8

A company was incorporated in a country other than the UAE on 1 September 2023, with a Financial Year of 1 September to 31 August, a 12- month period.

With reference to all facts and circumstances, the company determined that it was effectively managed and controlled in the UAE during the Financial Year beginning 1 September 2023 to 31 August 2024 and is, therefore, a Resident Person.

The Resident Person's first Tax Period will be from 1 September 2023 to 31 August 2024, being the first Tax Period commencing on or after 1 June 2023.

Timelines to apply for Tax Deregistration where the Person ceases their Business or Business Activities before or during the first Tax Period

For Corporate Tax purposes, a Taxable Person is required to deregister, in the event of the cessation of its Business or Business Activity, whether by dissolution, liquidation, or otherwise.[11]

Notably, the expiry of a Licence or the lack of a valid Licence does not, by itself, constitute cessation of Business or Business Activities.

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 there is a cessation of its Business or Business Activities during its first Tax Period.

Example 9

  • A company was incorporated in 2020 with a Financial Year from 1 September to 31 August. For Corporate Tax purposes, its first Tax Period would be from 1 September 2023 to 31 August 2024. However, if the Business was closed and the company ceased to exist on 25 July 2023, i.e. before the commencement of the first Tax Period, then it is not required to register for Corporate Tax.

  • Conversely, if the Company was deregistered after the start of its first Tax Period, for example, in May 2024, then this company would be required to register for Corporate Tax in order to meet its Corporate Tax compliance obligations for the first Tax period before its cessation. This principle applies regardless of the deadline for registration which is prescribed in FTA Decision No. 3 of 2024.

Where a Taxable Person ceases their Business or Business Activities during their 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 in Article 2 of FTA Decision No. 6 of 2023, i.e. within 3 months of the date of cessation. [12]

A Taxable Person must be registered before filing a Tax Deregistration application.

Therefore, the Taxable Person must ensure that they have registered in time, to allow for sufficient time to comply with the deadline for Tax Deregistration which is 3 months from the date of cessation. Failure to do so can result in administrative penalties.

Example 10

  • A company was incorporated in October 2015 with a Financial Year corresponding to the Gregorian calendar year. Its Business Licence was issued in October 2015. Its first Tax Period will be from 1 January 2024 to 31 December 2024. However, the company ceases Business on 2 July 2024.

    Hence its first Tax Period will be from 1 January 2024 to 2 July 2024. Accordingly, the company has until 2 October 2024 to file a Tax Deregistration application, i.e. within 3 months of the cessation date.

  • The deadline for the company to register would be 30 November 2024 as per Article 3(1) of FTA Decision No. 3 of 2024.

    However, as the deadline for deregistration is 2 October 2024, the company must apply for Tax Registration in sufficient time, so that it is able to submit an application for Tax Deregistration by 2 October 2024.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, and its amendments, and the implementing decisions.

This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Legislative References:

In this clarification, Federal Decree-Law No. 32 of 2021 on Commercial Companies is referred to as "Commercial Companies Law", Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business, and its amendments is referred to as "Corporate Tax Law", Cabinet Decision No. 116 of 2022 on the Determination of Annual Income Subject to Corporate Tax is referred to as "Cabinet Decision No. 116 of 2022", Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Qualifying Free Zone Person for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Cabinet Decision No. 100 of 2023", Ministerial Decision No. 73 of 2023 on Small Business Relief for the Purposes of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Ministerial Decision No. 73 of 2023", Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Ministerial Decision No. 82 of 2023", Ministerial Decision No. 97 of 2023 on Requirements for Maintaining Transfer Pricing Documentation for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Ministerial Decision No. 97 of 2023", Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Ministerial Decision No. 126 of 2023", Ministerial Decision No. 265 of 2023 Regarding Qualifying Activities and Excluded Activities for the Purposes of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "Ministerial Decision No. 265 of 2023", Federal Tax Authority Decision No. 5 of 2023 on Conditions for Change in Tax Period for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "FTA Decision No. 5 of 2023", and Federal Tax Authority Decision No. 6 of 2023 on Tax Deregistration Timeline for the Purposes of Federal Decree- Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as "FTA Decision No. 6 of 2023".

Footnotes

[1] Article 69 of the Corporate Tax Law states the Corporate Tax Law shall apply to Tax Periods commencing on or after 1 June 2023.

[2] Article 57(1) of the Corporate Tax Law states a Taxable Person's Tax Period is the Financial Year or part thereof for which a Tax Return is required to be filed.

[3] Article 57(2) of the Corporate Tax Law states that 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.

[4] Article 14(1) of the Corporate Tax Law states that a Non- Resident Person has a Permanent Establishment in the UAE in any of the following instances:

  • Where it has a fixed or permanent place in the UAE through which the Business of the Non-Resident Person, or any part thereof, is conducted.

  • Where a Person has and habitually exercises an authority to conduct a Business or Business Activity in the UAE on behalf of the Non-Resident Person.

  • Where it has any other form of nexus in the UAE as specified in a decision issued by the Cabinet at the suggestion of the Minister.

[5] Article 11(3)(b) of the Corporate Tax Law states that a juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE.

[6] Article 3 of the Commercial Companies Law states that the provisions of the Commercial Companies Law as well as the regulations and decisions issued in implementation thereof, shall apply to commercial companies established in the UAE; also, the provisions relating to foreign companies set forth in the Commercial Companies Law, as well as the decisions and regulations issued in implementation thereof, shall apply to foreign companies that establish their head office in the UAE for the practice of any activity therein or establish a branch or representative office thereof in the UAE.

[7] Article 4 of the Commercial Companies Law lists the companies who are exempt from the provisions of Commercial Companies Law. This includes the following:

  1. Companies exempt under a Cabinet decision, where a special provision is stipulated to this effect in the Memorandum of Association or Statute thereof in accordance with the controls issued by the Council of Ministers.

  2. Companies wholly owned by the Federal or Local Government, or any of the institutions, bodies, agencies, or subsidiaries thereof, and any other companies wholly owned by those entities or their subsidiaries, where a special provision is stipulated to this effect in the Memorandum of Association or Statute thereof.

  3. Companies in which the Federal or Local Government, or one of the institutions, bodies, agencies, subsidiaries thereof or any companies in which any of them owns, directly or indirectly, at least (25%) of their capital and operating in the field of oil exploration, extraction, refining, manufacturing, marketing, and transportation, or operating in the energy sector of all kinds, or in the electricity and gas production or water desalination, transmission, and distribution, where a special provision to this effect is stipulated in the Memorandum of Association or Statute thereof.

  4. Companies exempt from the provisions of Federal Law no. 2 of 2015 on Commercial Companies, and its amendments, prior to the date of entry into force of the provisions of Commercial Companies Law, where a special provision is stipulated to this effect in the Memorandum of Association or Statute thereof.

  5. Companies exempt from the provisions of the Commercial Companies Law by virtue of special federal laws.

  6. Special Purpose Acquisition Company (SPAC) without any other purpose, where a special provision is stipulated to this effect in the decision issued by the Authority regarding these companies.

  7. Special Purpose Vehicles (SPV), where a special provision is stipulated to this effect in the decision issued by the Authority to regulate this activity.

[8] Article 5 of the Commercial Companies Law states that the provisions of the Commercial Companies Law shall not apply to companies incorporated in the free zones of the UAE where a special provision to this effect is stipulated in the laws or regulations of the relevant free zone. Notwithstanding the foregoing, these companies shall be governed by the provisions of the Commercial Companies Law if such laws or regulations permit them to conduct their activities outside the free zone in the UAE.

[9] Article 28(1) of the Commercial Companies Law states that first financial year of the company does not exceed 18 months and is not less than 6 months, commencing as of the date of the company's entry in the commercial register at the competent authority having competence with regards to the affairs of companies in the relevant Emirate.

[10] Article 58 of the Corporate Tax Law allows a Taxable Person to make an application to the FTA to change the start and end date of its Tax Period, or use a different Tax Period, subject to conditions provided in FTA Decision No. 5 of 2023. FTA Decision No. 5 of 2023 states that an application can be made to FTA to change the start and end date of its Tax Period, or use a different Tax Period, provided following conditions are met:

  1. The change is for one of the following reasons:

    • The Taxable Person's liquidation; or

    • Aligning the Taxable Person's (that is a Resident Person) Financial Year with another Resident Person for the purpose of forming a Tax Group or joining an existing Tax Group; or

    • Aligning the Taxable Person's Financial Year with the Financial Year of its domestic or foreign head office, subsidiary, parent, or ultimate parent company, for the purpose of financial reporting or to benefit from a tax relief available under the Corporate Tax Law or under a legislation of a foreign jurisdiction; or

    • There is valid commercial, economic, or legal reason to change the Tax Period.

  2. The Taxable Person has not yet filed the Tax Return for the Tax Period it is applying to change;

  3. The Tax Period is not extended to last more than 18 months or not reduced to last less than 6 months;

  4. Where the Taxable Person filed an application to shorten a Tax Period, the application is not in respect of a prior or current Tax Period;

  5. The application is made before the lapse of 6 months from the end of the original Tax Period.

[11] Article 52(1) of the Corporate Tax Law states that A Person with a Tax Registration Number shall file a Tax Deregistration application with the Authority where there is a cessation of its Business or Business Activity, whether by dissolution, liquidation, or otherwise, in the form and manner and within the timeline prescribed by the FTA.

[12] Article 2(2) of FTA Decision No. 6 of 2023 states that for the purposes of Article 52(1) of the Corporate Tax Law referred to above, the juridical Person shall file a Tax Deregistration application within 3 months of the date the entity ceases to exist, cessation of the Business, dissolution, liquidation or otherwise.

[13] Article 3(1)(a) of the Corporate Tax Law read with Cabinet Decision No. 116 of 2023 states that the Corporate Tax shall be imposed at the rate of 0% on the portion of the Taxable Income not exceeding AED 375,000.

[14] Article 21(1) of the Corporate Tax Law read with Article 2(1) of Ministerial Decision No. 73 of 2023 states that a Taxable Person that is a Resident Person may elect for Small Business Relief where its Revenue for the relevant Tax Period and previous Tax Periods does not exceed AED 3 million for each Tax Period.

[15] Article 54(2) of the Corporate Tax Law read with Article 2(1) of Ministerial Decision No. 82 of 2023 states that a Taxable Person deriving exceeding AED 50 million during the relevant Tax Period shall prepare and maintain audited financial statements.

[16] Article 55(2) of the Corporate Tax Law read with Article 2(1) of Ministerial Decision No. 97 of 2023 states that a Taxable Person that meets either of the following conditions shall maintain both a master file and a local file in the relevant Tax Period:

  1. Where the Taxable Person, for any time during the relevant Tax Period, is a Constituent Company of a Multinational Enterprises Group as defined in the Cabinet Decision No. 44 of 2020 has a total consolidated group Revenue of AED 3.15 billion or more in the relevant Tax Period.

  2. Where the Taxable Person's Revenue in the relevant Tax Period is AED 200 million or more.

[17] Article 20(5)(a) of the Corporate Tax Law read with Article 2(1) of Ministerial Decision No. 114 of 2023 states that a Person may prepare financial statements using the Cash Basis of Accounting where the Person derives Revenue that does not exceed AED 3 million.

[18] Article 20(1) of the Corporate Tax Law read with Article 4 of Ministerial Decision No. 114 of 2023 states that a Taxable Person deriving Revenue that does not exceed AED 50 million may apply IFRS for SMEs.

[19] Article 18 of the Corporate Tax Law read with Article 4 of Cabinet Decision No. 100 of 2023 and Article 3 of Ministerial Decision No. 265 of 2023 states that de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed 5% of the total Revenue of the Qualifying Free Zone Person in that Tax Period or AED 5 million, whichever is lower.

[20] Article 30 of the Corporate Tax Law read with Article 8(1) of Ministerial Decision No. 126 of 2023 states that the General Interest Deduction Limitation Rule on the deductible Net Interest Expenditure provided under Article 30(1) of the Corporate Tax Law shall not apply where the Net Interest Expenditure for the relevant Tax Period does not exceed AED 12 million.