UAE CT Update | Federal Tax Authority (FTA) Decision prescribing conditions to change the tax period

The Federal Tax Authority (‘FTA’) has issued Decision No. 5 of 2023 on 7 April 2023 (effective from 1 June 2023), prescribing the conditions for change of Tax period, by a Taxable Person under Article 58 of the Federal Decree-Law No. 47 of 2022 (‘the CT Law’). Article 57 of the CT law states that generally, a tax period for any taxable person shall be the Financial Year or part thereof for which a Tax Return is required to be filed however Article 58 provides that the taxable person has a right to change the start and end date of its tax period or use a different tax period subject to receiving prior permission from the FTA. By way of the present decision, FTA has notified the conditions for change in Tax Period for the purposes of the CT law.

A taxable person can make an application to the FTA for change in the Tax Period provided the change is for one of the following reasons:

1. The change in a tax period is proposed as a result of:

1. Liquidation; or
2. For aligning the Financial Year (‘FY’) of a resident taxable person with another resident person to form a Tax Group or for joining an existing Tax Group; or
3. For aligning FY with FY of any of its domestic or foreign head office, subsidiary, parent, or ultimate parent company for financial reporting purposes; or
4. To avail benefits of tax relief under the CT Law or under the legislation of a foreign jurisdiction; or
5. For a valid commercial, economic, or legal reason to change the tax period.

Besides the above, the conditions for change in the Tax Period are as under:

2. The Taxable Person has not filed the Tax return for the period for which the application for change of tax period is being submitted; 3. Application can be made to either extend the current tax period up to a maximum of 18 months or to reduce the next tax period to between 6 and 12 months. Application for reduction of tax period cannot be made for the prior or current tax period; 4. The Application shall be made before the lapse of 6 months from the end of the original tax period.

The above decision shall be published in the Official Gazette and shall come into effect as on 1st June 2023.

Key Takeaways

The conditions prescribed for change in the tax period are aligned with the best practices. The decision also puts to rest the ambiguity over the reasons necessitating the change. It also gives certainty to the businesses who were contemplating the change in their financial year due to any of the aforesaid reasons but were apprehensive that such a change may be considered as an act which may lead to invoking of Anti-Abuse Rules laid down under Article 50 of the CT law by the Authority. The condition for changing the tax year to avail tax relief under the CT law shall be helpful for corporations and businesses who are required to change their financial year for enjoying relief to the maximum possible period.

It is likely that the form and the manner for making an application for a change of tax period may be notified through a separate decision by the FTA in due course.

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Also Check:- Corporate Tax in UAE