Change Corporate Tax Period | Taxpayer User Manual

The taxable entity looking to change its corporate tax period to align the financial year or tax period with the overseas parent company or to adopt the rationalization with other group companies may opt to change the tax period under the Corporate Tax in the UAE. The law allows flexibility in the change of the tax period with regard to corporate tax in the UAE, but only on grounds of justifiable cause and with reference to a resolution from the directors as well as the shareholders. Thus, in this blog post, we will outline the main reasons and conditions for the change of a tax period in the UAE, thus helping you to make the right decisions for your business.

Changing Corporate Tax Period UAE

Is It Possible to Change the Tax Period for the UAE Corporate Tax Law? Yes, the tax period under the UAE Corporate Tax Period Law can be altered, but this has to be done for a proper reason. The UAE corporate tax period change procedure involves specific steps and compliance considerations for altering corporate tax period in UAE. It is no longer enough to base its reasons solely on tax savings and this attracts the operation of the General Anti-Abuse Rule (GAAR). However, if the Tax Authority feels that it was an attempt to escape taxes, implications will occur. Some of the allowable grounds for change include the adoption of the company’s overseas group financial year so as to ease consolidation and preparation of financial statements. Thus, be sure to have a valid reason that will allow you to change the financial year in your organization, considering the impact of changing the corporate tax period on tax planning in UAE.

Causes/Reasons for Changing the Tax Period of a Taxable Person 

Several scenarios may necessitate a change in the tax period as stated below:

• Liquidation: If the company is in the process of liquidation, the change may be deemed necessary with regards to the tax period of the company.
• Aligning with Group Companies: To be consistent with other group companies, and also to coordinate and join a ‘Tax Group,’ could prove effective, highlighting the importance of aligning the financial year with group companies in the context of UAE corporate tax period adjustment requirements.
• Aligning with Parent or Subsidiary: Coordinating the financial year with the domestic or foreign head office, parent, subsidiary, and/or ultimate parent can be useful in claiming tax relief in UAE or any other jurisdiction, indicating the implications of changing corporate tax reporting period in UAE.
• Commercial, Economic, or Legal Reasons: Some other fairly significant commercial, economic, or legal rationalizations for the change other than those identified above.

Limitations/Restrictions Under the UAE Corporate Tax Regime for Changing the Tax Period: 

To change the financial year or tax period, you must follow these steps:

• Submit an Application to the Federal Tax Authority (FTA): This must be done in specificity of the provision of Article 58 of the Federal Decree-Law No. 47/2022 on the Corporate Tax UAE for  guidance User Manual for Taxpayers on EmaraTax Portal can be used.
• Meet All Conditions Outlined by the FTA: There are laid down conditions of FTA that must be met for the change to be approved, which includes the implementation of the decision for change in the tax period.

Conditions for Changing the Tax Period of a Taxable Person

The following conditions must be met to change the tax period:The following conditions must be met to change the tax period:

• Tax Return Should Not Be Filed for the Taxable Year for Which the Change Is Applied:- With regards to changing accounting periods of non –resident companies, make certain that no tax return has been submitted for the period concerned.
• Current Tax Period Should Not Exceed 18 Months:- Tax period must be within the period of eighteen months starting from the current date.
• Next Tax Period Should Be Between 6 and 12 Months:- It is required that the next tax period has to fall somewhere within this range.
• Application Should Be Made in the First Half of the Original Tax Period:- File it during the initial part of a current fiscal period however, this reminds me of the lodgment period.
• Shortening of Tax Period Is Possible Only for the Next Tax Period:- In Dy Ltd, the next tax period can be shortened but the current or prior tax period cannot.

Here, the FTA has to ensure that all these conditions are fulfilled before they agree to the change.

Process/Practical Steps for Changing Your Tax Period

• Step 1:- Evaluate Your Reason for Change:- Make sure that you have the right reason for requesting the change of the tax period. Some of the causes may be; the realignment of fiscal years within an overall corporate group; the dissolution of a company; or to provide compliance to financial reporting standards.
• Step 2:- Gather Necessary Approvals:- However, ensure that you get referees from the directors and shareholders of the company you are founding. This internal consensus is important so that the change that is required within the business happens at all the levels of the business enterprise.
• Step 3:- Prepare the Application:- It is necessary to complete an extensive petition to the FTA describing the rationale for the change as well as all the circumstances explaining that all the conditions are met. Accompany documents like the balance sheet, management resolutions, and any other document that is believed to have bearing to the case.

• Step 4:- Submit the Application:- Complete sending of the application to the FTA before the specified time (the first half of the initial tax period). Pay a lot of attention to ensuring that your application has all the necessary information and that it is truthful to avoid cases of delays.

• Step 5:- Await FTA Decision:- The remaining steps are to wait for a decision from the FTA after submission of the application. Hence the FTA will scrutinize your application and confirm that all conditions have been met before the change is granted.

• Step 6: Implement the Change:- After gaining the FTA’s approval to make the change, effect the change in your financial systems in addition to the reporting processes. At the same time, inform all the stakeholders about the change, specifically your accounting and finance staff to improve the transition.

The Impact of Changing Your Tax Period on Tax Planning

Adjusting the tax period can significantly affect your tax planning strategy:

• Optimized Tax Benefits: It is advantageous to choose the tax period that directly corresponds with the business’s cycle in order to maximize the tax benefits.
• Financial Synchronization: This enhances the overall compatibility of financial and tax periods so as to enhance the general management of the financials.
• Strategic Decisions: Enables better management on when and how long engagements can delay taxes, or make their payments more promptly.
• Simplified Consolidation:- It also makes consolidation easier and prepares systematic group company consolidated financial reports that are in line with the Group’s financial year.
• Consistency in Reporting:- When different entities’ financial periods are aligned, it contributes to better and comparatively precise financial information.
• Tax Relief Opportunities:- Operation in cooperation with parent or subsidiary enterprises may be useful for further receiving the tax exemption and other profit.
• Budgeting:- Modification in the tax period may alter your main financial machinery, which are operating strategies.

Potential Drawbacks

• Administrative Burden:- There is a lot of paperwork required for the change of the tax period, getting approval, and submitting a detailed application.
• Regulatory Scrutiny:- The FTA will pay particular attention to the applications they receive and only approve them when there is a good reason why the company cannot pay taxes, this could cause delay of approval or could lead to the application being denied.

The decision to alter the tax period in the context of business from 1 st June 2023 entails proper comprehension of the decision in its full impact. It is imperative to understand the circumstances and rationale for changing the financial year or tax period so that compliance with the UAE Corporate Tax law is achieved and proper decisions helpful to the company are made. Although you may switch your tax period in UAE, this is accompanied by a valid reason and also a strict adherence to the FTA rules. Thus, it is possible to align the financial periods in a way that would improve the efficiency of numerous company operations, and, possibly, yield financial benefits, if the planning and application processes are executed properly.

                          Frequently Asked Questions

What is the process for changing the corporate tax period in the UAE? 

To change the corporate tax period, log in to the EmaraTax Portal, submit an application with a valid reason, and attach the necessary documentation. The FTA will review and approve the request if it meets the stipulated conditions.

Are there any specific requirements or documentation needed to modify the corporate tax reporting period? 

Yes, requirements include ensuring the current tax return is unfiled, the tax period duration criteria are met, and a valid reason for the change is provided. Necessary documentation must support the application.

How does changing the corporate tax period impact a business's tax obligations and liabilities in the UAE?

Changing the tax period can affect the timing of tax liabilities and obligations. It may lead to adjustments in financial planning, compliance schedules, and potential tax benefits. Businesses must understand these impacts to manage their tax obligations effectively. The procedure for the amendment of the corporate tax period in UAE is as follows: you have to go to the EmaraTax Portal, complete an online application form, and furnish the reason for the change in the corporate tax period and some supporting documents/attachments. The FTA will then consider the request based on the above conditions and grant approvals where necessary.

What measures would be considered before making any change in the corporate tax reporting period? 

Prerequisites are as follows: Even in the case the present tax return must remain unaudited, the criteria of tax period duration have to be met, and, of course, there must be a rationale for this transformation. In this connection, the following points are highlighted: On the application, there are special requirements that all supporting documents must be submitted.