The Federal Tax Administration (FTA) will be responsible for managing, collecting and applying Corporate Tax in the United Arab Emirates. On the other hand, the Ministry of Finance will continue to act as the “competent authority” with regard to the negotiation and administration of international tax agreements, as well as in the exchange of information for tax purposes.

Tax Period

The tax period for a taxable person is defined as the financial year, which can be the Gregorian calendar year or a 12-month period for which the financial statements are prepared, or a fraction of it, during which the Corporate Tax return must be filed.

A taxable person can apply to the Federal Tax Administration for a change in the start and end date of their tax period, or adopt a different tax period, provided that the following conditions are met:

1. The change must be aimed at liquidation, adjustment of the fiscal year for purposes of fiscal grouping, financial reporting or domestic and foreign tax relief.
2. There must be a valid business, economic or legal reason to modify the tax period.
3. The taxpayer resident in the UAE must not yet have filed the tax return for the period for which he is requesting the change.
4. The application must be submitted no later than six months after the end of the original tax period, that is, three months before the deadline for filing the original tax return.

It is important to note that a taxable person resident in the UAE can only modify the tax period by extending the current tax period to a maximum of 18 months, or reducing the following tax period to a minimum of 6 months and a maximum of 12 months.

VAT Registration, Declarations and Payments

All taxable persons are required to register electronically with the Federal Tax Authority for VAT purposes within the established deadline and obtain a tax registration number. This registration requirement applies even to taxable persons who are already previously registered for VAT purposes.

To minimize the administrative burden on taxpayers, the Corporate Tax Act states that taxable persons must file a single return for each tax period.

The return must be submitted electronically within a maximum period of nine months after the end of the corresponding tax period. VAT registration must be completed before the filing deadline. Any value-added tax that must be paid must also be settled within these deadlines.

Illustrative examples are presented below in the following table:

Tax settlement

A taxable person may be subject to tax settlement in the UAE in accordance with the Tax Procedure Act. If a breach of the Corporate Taxation Act is detected during the evaluation, penalties and fines may apply as stipulated in the Tax Procedure Act.

Financial Statements

Taxable persons must submit the financial statements used to determine taxable income for a tax period, in accordance with the requirements specified by the Corporate Taxation Act.

Financial statements must be prepared in accordance with International Financial Reporting Standards. If the taxable person's income exceeds the threshold of AED 50 million in the relevant tax period, or if the taxable person is classified as a Qualified Free Trade Zone Person (QFZP), those states must be audited.

In cases where revenues do not exceed AED 3 million, or through a special request to the Federal Tax Authority, the preparation of financial statements will be allowed on a cash basis instead of an accrual basis.

Preservation of Documents

Taxable persons must keep all relevant records and documents for the following periods:

• Real Estate Records: Seven years from the end of the calendar year in which the record or document was generated.
• General Documentation: A general period of five years, extended by an additional year from the date of filing a voluntary return in the fifth year from the end of the corresponding tax period.
• Audits and Litigation: Four additional years if there is an ongoing tax audit, tax litigation, or FTA notification of a pending audit.
  
• Legal Representatives: Legal representatives must keep the required books and records of the person they represented for an additional year after the end of the legal representation.

Clarifications

Individuals can ask the Federal Tax Authority for clarification on any aspect of the UAE Corporate Taxation Act or to establish an Advance Transfer Pricing Agreement for a specific transaction or agreement.

General Anti-Abuse Rule

In line with international best practices, the United Arab Emirates Corporate Taxation Act incorporates a General Anti-Abuse Rule. This rule applies to transactions that result in a tax advantage when there is no valid business justification and when obtaining that tax advantage is the main objective or one of the main objectives of the transaction.

If applicable, the Federal Tax Authority has the authority to determine that one or more specific tax advantages must be counteracted or adjusted. In such a situation, it will issue a liquidation to implement that adjustment and may make corrections to the tax liability of any other entity affected by the decision.

During any procedure related to such an application, the Federal Tax Authority must demonstrate that the determination made is fair and reasonable.