Aligning company financial years with corporate income tax in the UAE

Aligning company financial years with corporate income tax in the UAE

Federal Tax Authority Decision No. 5 of 2023 Issued 7 April 2023 (Effective from 1 June 2023)

The United Arab Emirates (UAE) has recently announced a significant amendment to its corporate income tax (CIT) regulations. The amendment relates to the financial year-end for companies operating in the UAE and is expected to have a significant impact on businesses operating in the country.

Prior to the amendment, companies in the UAE were allowed to choose their financial year-end, with many opting for a calendar year-end. However, the new regulations recommend all companies to adopt a financial year-end of December 31st.

The change is for one of the following reasons:

  • The Taxable Person’s liquidation.
  • Aligning the Resident Taxable Person’s Financial Year with the Financial Year of another Resident Person for the purpose of forming a Tax Group or joining an existing Tax Group, or aligning the Taxable Person’s Financial Year with the Financial Year of its domestic or foreign head office, subsidiary, parent, or ultimate parent company, for the purpose of financial reporting, or to benefit from a tax relief available under the Federal Decree-Law No. 47 of 2022 referred to above or under the legislation of a foreign jurisdiction; or
  • There is valid commercial, economic, or legal reason to change the Tax Period.
  • The Taxable Person has not yet filed the Tax Return for the Tax Period he is applying to change.
  • The application for change in Tax Period is in respect of any of following:
  • 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.

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

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.

One of the key advantages of the new regulation is improved clarity and consistency in financial reporting. This will make it easier for businesses to comply with regulatory requirements and provide stakeholders with greater transparency and insight into their financial performance.

In addition to these benefits, the amendment is also expected to simplify the tax compliance process for businesses operating in the UAE. By standardizing the financial year-end for all companies, the government can more easily track and monitor tax payments and ensure that all businesses are complying with their tax obligations.

The new regulations are also expected to promote greater efficiency and accuracy in tax reporting. With a standardized financial year-end, businesses will be better able to prepare accurate and timely tax returns, reducing the risk of errors and omissions that could lead to penalties or legal disputes.

Overall, the new regulations regarding the financial year-end for companies operating in the UAE represent a significant change for businesses operating in the country. While the amendment may require some adjustments and changes in the short term, the benefits of improved transparency, efficiency, and accuracy in tax reporting are likely to outweigh any initial challenges. As such, businesses operating in the UAE should take steps to ensure that they are fully compliant with the new regulations and prepared to adapt to the changing regulatory landscape.


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