UAE Corporate Tax Update : Decision No. 5 of 2023

UAE Corporate Tax Update:

The Federal Tax Authority (FTA) in UAE as published an important Decision on UAE Corporate Tax: “Federal Tax Authority Decision No. 5 of 2023 Conditions for Change in Tax Period for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses”. This Decision addresses the conditions to be complied with for changing the Tax period (financial year) by taxable persons under UAE Corporate Tax.

The change can be requested if any of the following conditions are met with:

1.      Liquidation of the Taxable person i.e. if the company is being liquidated then the last tax period could be different from usual financial year.

2.      To align with the requirements to form a Tax Group under UAE CT or align the financial year to meet their group policies for the purpose of financial reporting or to avail a tax relief under the provisions of UAE CT/Tax Legislation of a foreign jurisdiction.

3.      If there is a valid commercial, economic, or legal reason to change the taxable period/financial year.

If any of the above conditions are met, the taxable person can make an application to change its tax year subject to meeting below requirements:

1.      The Taxable Person has not yet filed the Tax Return for the Tax Period he is applying to change.

2.      The application for change should be Extend the current Tax Period to be a maximum of 18 months; or Shorten the next Tax Period to be between 6 and 12 months.

3.      The application shall be made before the lapse of 6 months from the end of the original Tax Period.

4.      Where the Taxable Person filed an application to shorten a Tax Period, the application shall not be in respect of a prior or current Tax Period.

There had been many questions from businesses whether they can opt to change their financial year for UAE Corporate Tax purposes and this new Decision sheds more light into the conditions that should be satisfied for changing the tax year. This Decision will be effective from June 01, 2023 onwards.

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