Corporate Tax Public Clarification First Tax Period of a juridical person

The FTA has issued a Corporate Tax Public Clarification CTP003 on the First Tax Period of a Juridical person on July 30, 2024. This Public Clarification is intended to clarify the First Tax Period under the Corporate Tax Law for the following categories of Taxable Persons:

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

➢ Non-Resident Persons with a Permanent Establishment

➢ A Resident Person that is incorporated or otherwise established or recognized under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE.

➢ Timeline for Tax Deregistration in case of the cessation of Business or Business Activities before or during the first Tax Period.

Summary:

1. Juridical Person subject to the Commercial Companies Law: -

The Public Clarification clarified that the first Financial Year under the UAE Commercial Companies Law Incorporated on or after June 1, 2023: The first Tax Period shall be from the date of incorporation to the end of the financial year, which may be between 6 and 18 months. Incorporated before June 1, 2023: The first Tax Period shall be the first financial year commencing on or after June 1, 2023.

2. Non-resident Person with a Permanent Establishment in the UAE:-

According to the Public Clarification, the first Tax Period will be the Financial Year or part there of beginning from when the PE first began operations. Where the Non resident’s activities which constituted a PE existed before 1 June 2023, the first Tax Period shall be the first Financial Year commencing on or after 1 June 2023. Where a PE of a Non-resident is created on or after 1 June 2023, The first Tax Period shall be from the date of incorporation to end of the financial year which may be between 6 months and less than 18 months.

3. Resident Person effectively managed and controlled in the UAE: -

The first Tax Period will be the Financial Year or part there of commencing on or after 1 June 2023.

4. TAX Deregistration in case of Cessation of business before or during the first Tax Period: -

When a Taxable Person ceases its activity by dissolution, liquidation or otherwise, during the first Tax Period, it is required to make an application for Tax Deregistration within three months. The fact that the Taxable Person ceases their activity during the f irst 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.

❖ Pro-rata of UAE CT thresholds: 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 thresholds prescribed under the UAE CT Law, such 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, the threshold for the Small Business Relief, the threshold for the requirement to prepare audited financial statements, the thresholds related to the requirement to prepare Transfer Pricing (TP) master file and local file, the threshold required for the eligibility to prepare f inancial statements using the Cash Basis of Accounting, the threshold required for the eligibility to prepare the financial statements using International Financial Reporting Standards for small and medium-sized entities (IFRS for SMEs); and the de-minimis requirement for a Qualifying Free Zone Person.

The only provision of the UAE CT Law which establishes a threshold that should be pro-rated in instances where the first Tax Period is longer or shorter than 12-months is the General Interest Deduction Limitation Rule, which provides that Net Interest Expenditure exceeding the higher of (i) AED 12 million; or (ii) 30% of the tax adjusted EBITDA should not be deductible for UAE CT purposes.