UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and related decisions, focusing on tax periods, deregistration, tax rates, financial reporting, accounting methods, and specific relief measures for businesses.

1. First Tax Period Determination

• Juridical Persons Under the Commercial Companies Law:
  • The first Financial Year can range from 6 to 18 months.
  • The first Tax Period aligns with the company’s first Financial Year, whether it’s 6, 12, or 18 months.
  • If the first Tax Period is shorter or longer than 12 months, no application to the FTA is required.
  • No pro-rata calculation for thresholds (e.g., Small Business Relief), except for certain rules like the General Interest Deduction Limitation threshold.
• Non-Resident Person with Permanent Establishment (PE):
  • First Tax Period begins when the PE starts operations, aligning with the first Financial Year after 1 June 2023.
  • If established before 1 June 2023, the first Tax Period aligns with the first 12-month Financial Year beginning on or after 1 June 2023.
• Resident Person Managed in the UAE:
  • For foreign companies effectively managed in the UAE, the first Tax Period starts from the Financial Year starting on or after 1 June 2023.
• Cessation of Business:
  • If a business ceases during the first Tax Period, the company must apply for Tax Deregistration within 3 months of cessation.
• Subsequent Tax Periods:
  • After the first Tax Period, each subsequent Tax Period is 12 months unless an application is made for a unique case.

2. Change in Tax Period

• Article 58 of the Corporate Tax Law allows a Taxable Person to change the start and end dates of their Tax Period with the FTA’s approval, under conditions such as:
  • Business liquidation, aligning financial years with other entities for tax group purposes, or for valid commercial, economic, or legal reasons.
  • The Tax Period must last between 6 to 18 months, and no application for a shortened period can apply to prior or current periods.
  • The application must be filed within 6 months after the original Tax Period ends.

3. Tax Deregistration

• Article 52(1) of the Corporate Tax Law mandates a Tax Deregistration application if a business ceases operations, including dissolution or liquidation, within its Tax Period.
• According to FTA Decision No. 6 of 2023, the application for Tax Deregistration must be filed within 3 months from the cessation date.

4. Tax Rates and Reliefs

• 0% Corporate Tax applies to taxable income up to AED 375,000 (Article 3(1)(a)).
• Small Business Relief is available to Resident Persons whose revenue does not exceed AED 3 million for the relevant and prior Tax Periods (Article 21(1), Ministerial Decision No. 73 of 2023).

5. Financial Reporting Requirements

• Companies with revenue over AED 50 million must prepare audited financial statements (Article 54(2), Ministerial Decision No. 82 of 2023).
• Companies with revenue over AED 200 million or part of a multinational group with total revenue of AED 3.15 billion or more must maintain transfer pricing documentation (Article 55(2), Ministerial Decision No. 97 of 2023).

6. Accounting Methods

• Cash Basis Accounting is allowed for companies with revenue below AED 3 million (Article 20(5)(a), Ministerial Decision No. 114 of 2023).
• Companies with revenue up to AED 50 million can apply IFRS for SMEs (Article 20(1), Ministerial Decision No. 114 of 2023).

7. Free Zone Considerations

• A Qualifying Free Zone Person must ensure that non-qualifying revenue does not exceed 5% of total revenue or AED 5 million in a Tax Period to meet de minimis requirements (Article 18, Cabinet Decision No. 100 of 2023, Ministerial Decision No. 265 of 2023).

8. Interest Deduction

• The General Interest Deduction Limitation Rule does not apply if net interest expenditure for the Tax Period does not exceed AED 12 million (Article 30, Ministerial Decision No. 126 of 2023). For Tax Periods longer or shorter than 12 months, the AED 12 million limit will be pro-rated.

Conclusion

The UAE Corporate Tax Law provides clear guidance on how Tax Periods are determined, adjustments to tax periods, tax rates, and various reliefs. Key provisions include flexibility in the first Tax Period, with periods ranging from 6 to 18 months, and detailed conditions for tax relief, financial reporting, and tax deregistration. It emphasizes timely registration and deregistration for companies and introduces thresholds that must be met for certain tax benefits.