Corporate Tax Update: Public Clarification on the First Tax Period of a Juridical Person

The Federal Tax Authority (FTA) has recently issued a Corporate Tax (CT) Public Clarification on the First Tax Period of a juridical person. This clarification intends to clarify the First Tax Period (FTP) under Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Business (‘UAE CT Law’) for the below categories of Taxable Persons (along with illustrative examples).

• Juridical person who is a resident taxable person and subject to Commercial
• Companies Law (Companies Law). FTP for Taxable Person formed under Free Zone regulations shall be determined in a similar manner, subject to the requirements under FZ regulations being nonetheless the same as Companies Law.
• A non-resident person having a Permanent Establishment (PE) in the UAE.
• Overseas entities whose place of effective management (PoEM) is in the UAE.
• The Public Clarification also addresses the timelines for Tax Deregistration in case of cessation of business/business activities before or during the FTP.

Andersen Takeaway

This is a welcome clarification that brings clarity and certainty to many businesses about the first tax period. Further certainty has been brought in with clarification that there will not be a pro-rata approach for various thresholds prescribed under CT Law (except interest capping).

• It is important to note that for companies incorporated in June 2023 and following the Gregorian calendar year as the FY as per Companies Law, the FTP shall be June to December 2023.
• Accordingly, the due date for the first CT return filing would be 30 September 2024 (9 months from the end of the tax period).
• In case the of a non-UAE person having a Fixed Place PE in the UAE, the Public Clarification provides that the Fixed Place PE would be with effect from when business activities began (and not 6 months thereafter). Thus, this may mean that the income earned from the first day of business activity resulting in a Fixed Place PE shall be considered for the purpose of levying tax.
• Taxable persons intending to liquidate during the FTP must ensure timely registration (irrespective of the CT registration deadline) to comply with the deadline for tax deregistration, i.e., 3 months. Failure to deregister within the prescribed time may attract administrative penalties.

Download the full document here.