The panic in the market regarding corporate tax law in the UAE is unwarranted as businesses have until January 1, 2024, to prepare for the new tax obligations. The Federal Tax Authority (FTA) has provided clarity on the first tax period, allowing businesses to align their tax obligations with their financial years. Under the UAE corporate tax law, businesses can choose to align their financial year with the Gregorian calendar year or opt for a custom 12-month period, depending on their financial reporting practices.
Determining the commencement of the first tax period can be a challenge for businesses. Most companies will start their first tax period with the first financial year beginning on or after June 1, 2023, typically starting on January 1, 2024. Newly incorporated companies may face additional complexities, as their first financial year could range between six and 18 months. The flexibility in financial years does not alter corporate tax obligations, with key thresholds such as income thresholds and small business relief limits remaining unchanged.
The corporate tax law also provides guidance for non-resident persons operating in the UAE through a permanent establishment or dependent agent. Non-residents with a fixed place of business will have their first tax period start after the entity has been operational for six months. Additionally, juridical persons incorporated in foreign jurisdictions but managed and controlled in the UAE are considered resident persons under the corporate tax law. Businesses are required to deregister for corporate tax if they cease operations, but the expiration of a business license alone is not sufficient for deregistration.
The key takeaway from the public clarification is that taxes are not only due from January 1, 2024, as entities with first tax periods spanning from June to December 2023 have tax obligations starting earlier. The first tax return is due by September 30, 2024, setting a precedent for future filings. Businesses are advised to embrace the change, adapt to the new requirements, and ensure their organization is prepared to thrive in the evolving corporate tax landscape.
In conclusion, the UAE corporate tax law may have brought about significant changes for businesses, but with proper understanding and preparation, the transition can be smooth. By aligning tax obligations with financial years, determining the commencement of the first tax period, and adhering to corporate tax obligations, businesses can navigate the new tax landscape effectively. It is essential for businesses to stay informed, seek guidance when needed, and ensure compliance with the corporate tax law to avoid any penalties or issues in the future.
