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Public Clarification on First tax period

A new public clarification (CTP003) has been released by the Federal Tax Authority providing guidance on First Tax Period for Corporate Tax of a Juridical Person. The key clarifications covered in the clarification are as under:

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• Juridical Persons incorporated under Commercial Companies Law: the First Tax Period will be the financial year or part thereof commencing on or after 1 June 2023.

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• Newly Incorporated Company: The first Tax Period of a newly incorporate company shall depend on the first financial year under Commercial Companies Law and can be any of the three scenarios:

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

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• Application for Change in Tax Period:

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  • Where the first financial year, starts before 01.06.2023, the first Tax Period will be the subsequent 12-month Financial Year commencing on or after 1.06.2023. No application is required for change in Tax Period for scenarios (b) and (c) above for a newly incorporated company..

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  • The Taxable Person can make an application to 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

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• Pro-rating of Thresholds Limit: : In case the first Tax Period is longer / shorter than a 12 month period, there isno pro-rating required for thresholds prescribed under CT Law except for AED 12 million De-minimus threshold for calculation of General Interest Deduction Limitation Rule.

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

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• Resident Person effectively managed and controlled in UAE: The first Tax Period will be the Financial Year or part thereof, commencing on or after 1 June 2023

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• Tax Deregistration:

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  • First Tax Period:Where a Taxable Person ceases their Business / Business Activities during first Tax Period, the first Tax Period will come to an end on the cessation date.

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  • Deadline:Tax Deregistration application is to be submitted within 3 months from the date of deregistration triggering event.