How is the Corporate Tax Period Determined?

The Ministry of Finance UAE, on 31st January 2022, introduced federal Corporate Tax (CT) in the United Arab Emirates which is applicable to business profits. This federal Corporate Tax regime will take effect on 1 June 2023 for the financial years starting on or after this date. This regime has not been finalized and work is still in progress to make sure that the scheme works effectively for both the businesses and the government after finalization. The aim of introducing this initiative before the actual release of the CT legislation is to consult businesses in the UAE because their suggestions can be helpful in the effectiveness of the legislation of corporate tax in UAE. 

What is Corporate Tax in the UAE?

Corporation tax in UAE is defined as a type of direct tax that is imposed on the net profit or income of the companies from their businesses. The purpose of the Ministry of Finance by introducing the corporate tax in UAE is to maintain the United Arab Emirates on its position as a global business hub. Other objectives of this regime are developmental acceleration, transformation, and commitment of the UAE to meet the global tax standards along with the prevention of illegal tax practices. The CT regime has not been released as legislation because the government seeks consultation from business owners in the UAE before enforcing the legislation.

Determine Corporate Tax Period

The following is all about the corporate tax period according to the Ministry of Finance UAE;

  • According to corporate tax legislation in the UAE that will be enforced with complete effect in the year 2023, the annual tax period for the businesses in the UAE will be as same as their financial accounting period.
  • The annual tax period would be equal to the Gregorian calendar year for the businesses in the UAE that do not possess a financial accounting period.
  • The amount of corporate tax that needs to be paid by a business is based on the income or profit for the relevant tax period.
  • If the financial year-end of a business is 30 June, its first tax period would start from 1 July 2023 and last up to 30 June 2024, and it must file and pay CT before 31 March 2025.
  • If the financial year-end of a business is 31 December, its first tax period would start from 1 January 2024 and last up to 31 December 2024, and it must file and pay CT before 30 September 2025.
  • If the financial year-end of a business is 31 March, its first tax period would start from 1 April 2024 and last up to 31 March 2025, and it must file and pay CT before 31 December 2025, and so on and so forth.
  • Another incentive of the CT regime is that a single financial period can be ignored and the businesses can pay CT out of the profit it gained in a complete life cycle. This incentive has been offered to help businesses overcome their losses over the course of years.
  • Business groups are also liable for CT for every tax period. For businesses that work in groups, CT legislation can treat the group as a single taxable individual. This single taxable individual is required to pay CT for every tax period. 
  • Every tax period holds its own foreign tax credit only. In the case of foreign tax credits that are unutilized, CT legislation will not allow them to move to other tax periods.
  • For each tax period, the business needs to register with the FTA and get a registration number. If a business does not register itself for a tax period, FTA will register it on its own. 

Scope of Corporate Tax in UAE

The following describes the scope of CT in UAE;

  • CT In UAE will apply to all individuals and corporations that are executing a licensed business in the UAE.
  • CT legislation applies to all businesses in the free zone. However, this new legislation will respect the incentives of corporate tax that are currently being given to the businesses in the free zone that are complying with business regulation laws.
  • CT legislation also applies to non-UAE individuals and entities that execute a business or trade in the UAE consistently.
  • Corporate tax legislation applies to all banking operations in the UAE.
  • CT in UAE also applies to businesses that are a part of activities like brokerage, development, construction, real estate management, etc.

Choose Corporate Tax in UAEIf you found this information helpful, learn more about corporate tax in Dubai, UAE, from experts. For starting a business or executing a business smoothly in the UAE, it is vitally important to know and observe legislation about business in the UAE. Similarly, it is mandatory for business owners to focus on the new corporate tax legislation and learn all about it before the year 2023. For the most genuine information and complete guidance, choose expert firm. Experts care about your business so that it complies with the legislation and regulations all the time.

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