With the introduction of the UAE’s Federal Corporate Tax Law, businesses in the UAE are facing challenges to keep an eye on all the components of corporate tax. One of the fundamental components businesses must understand and comply with is the corporate tax period.
This period defines the timeline within which companies calculate their taxable income and fulfill their tax obligations. Without a clear understanding of the corporate tax period, businesses risk missing filing deadlines, making tax errors, or facing penalties.
In this article, we provide a comprehensive understanding of the corporate tax period in the UAE. It includes the standard tax period, how to choose the right period, the deadlines for corporate tax filing, the specific tax period for Free Zone entities, and how Now Consultant can set a suitable corporate tax period for your business to ensure compliance with UAE regulations.
What Is a Corporate Tax Period In UAE?
The corporate tax period refers to the specified time frame used by businesses to report financial activities, calculate taxable income, and file corporate tax returns. This period aligns with a company’s financial year, but it can also be adjusted based on specific requirements, provided it complies with UAE regulations.
Each taxable person is responsible for maintaining accurate records of their income and expenses within the specified tax period.
Standard Corporate Tax Period In Dubai:
For most businesses, the standard corporate tax period is the Gregorian calendar year following their established financial year. The financial year covers 12 months, running in line with the calendar year from January 1 to December 31.
The period can be set to meet the specific requirements of your business. Under the UAE Tax Laws, the corporate tax period begins when a business becomes subject to taxation. Generally, companies with their first financial year starting on or after June 1, 2023, must align their tax period accordingly.
For example, if a business’s financial year begins on June 1, 2023, the first corporate tax return must be filed no later than February 28, 2025. For those whose financial year starts on January 1, 2024, their first return will be due by September 30, 2025.
Factors To Consider While Choosing a Corporate Tax Period:
Businesses have some flexibility when choosing their corporate tax period, but this must be done in compliance with UAE corporate tax regulations. You can choose the right tax period by careful consideration of the following factors:
1. Business’s Operational Cycle:
You can align the tax period with your business’s operational cycle, making financial analysis and tax planning easier. For example, businesses that have higher sales at certain times of the year may benefit from choosing a fiscal year that ends after their busiest months.
2. Financial Reporting Requirements:
If your business operates under a multi-national company, matching your tax period with the parent company’s reporting schedule can simplify financial reporting. This helps in preparing combined financial statements accurately and ensures consistency in tax filings.
3. Regulatory Compliance:
It is important to follow UAE regulatory compliance when choosing a tax period. The FTA must approve the chosen tax period. A consistent financial year improves clarity and reduces the risk of non-compliance.
How to Choose a Corporate Tax Period:
The following are the steps to be followed for choosing a corporate tax period for your business in the UAE:
Analyze Business Requirements:
First of all, you need to analyze your business requirements. You should check your business activities and decide if the specific financial period suits your operations.
Choose Tax Period and Submit Request:
When you have analyzed your business tax period requirements, the next step is to choose and confirm your tax period. For that purpose, you should submit a request to the Federal Tax Authority (FTA).
Submit Required Documents:
In this step, you should prepare and submit the required documents, such as financial statements and a clear explanation of why you chose this tax period.
Wait For Approval:
After submission of the complete application, the FTA will review your request. Once approved, your chosen tax period will determine your tax reporting and payment deadlines, ensuring compliance with UAE tax regulations.
Corporate Tax Filing Deadlines:
The UAE’s corporate tax filing deadlines are directly linked to the corporate tax period. As per Article 51 of the UAE Corporate Tax Law, businesses are obliged to submit their corporate tax returns and pay their tax liabilities within 9 months following the end of their tax period.
For Example:
- If your business’s financial year ends on June 30, the corporate tax return must be filed by March 31 of the next year.
- If your business’s financial year ends on December 31, the filing deadline is September 30 of the next year.
If you fail to meet these deadlines, your business faces a late filing penalty starting from AED 500 per month for the first 12 months after the deadline. The penalty amount increases to AED 1,000 per month after the end of the first 12 months.
Corporate Tax Period for Free Zone Entities
Free Zone entities in the UAE also need to comply with the requirements of the corporate tax period. Most of the entities in the Free Zone have 0% corporate tax or are exempt from the tax. However, they must still file corporate tax returns in the specified period if they earn taxable income or conduct activities outside the Free Zone.
Free Zone entities can choose a tax period that matches their financial year but must notify the FTA and request approval for any deviations from the standard timeline. The most favorable way for the Free Zone entities is to get expert guidance to ensure compliance with the corporate tax period regulations.
How We Can Help You?
The corporate tax period in the UAE presents various challenges, from understanding regulatory requirements to meeting strict filing deadlines. Many businesses struggle to align their financial activities with the tax period, risking costly errors, penalties, or non-compliance issues.
At Now Consultant, we encounter these challenges and offer expert guidance to help you easily set corporate tax periods according to your business requirements. From selecting the right tax period to addressing FTA requirements or complying with Free Zone regulations, we ensure your business fulfills all the tax obligations accurately.
