Liquidation in the First Corporate Tax Year

Many of the business owners have a question in mind. If a company follows a calendar year as a financial year, the applicability of Corporate Tax will be from 01, January 2024 and the first tax year is from 01, January 2024 to 31, December 2024. What will happen if the company liquidated before ending the first Corporate Tax period? Such a company shall be subject to Corporate Tax registration. If yes, what is the deadline? What shall be followed by the company after registration? In this article, let us demystify all those questions.

For easy understanding let us take an example through the example let us delve into these questions. A Free Zone company registered in Dubai Multi Commodity Center (DMCC) Free Zone on 15, June 2017 liquidated the license of 15, July 2024. The DMCC Company was following January to December as the financial year

Registration

As per the UAE Corporate Tax Law, all the companies shall register and comply with Federal Decree-Law No.47 of 2022.

A public clarification published by the Federal Tax Authority enlightened that any company which is not liquidated before the applicability of Corporate Tax shall register before the deadline specified in the FTA Decision No.3 of 2024 . The DMCC Company has followed the calendar year as a financial year, thus, the applicability of Corporate Tax is from 01, January 2024. 

The company liquidated on 15, July 2024, which means, the DMCC Company is obligated to register for Corporate Tax because the company was liquidated after the applicability of Corporate Tax.

Deadline for registration

Deadline for Corporate Tax registration is published by Federal Tax Authority. As per the decision any entity which is established before 01, March 2024 shall register for Corporate Tax as per the deadline mentioned.

The deadline is determined based on the month of license was issued, regardless of the year of license was issued. Please see the deadlines below: -

Keep in mind those taxable persons who are submitting the application for Corporate Tax after the prescribed deadline shall be subject to an administrative penalty of AED 10,000/-.

The DMCC Company has the license issued in the month of June (15/06/2017). The deadline for Corporate Tax registration is 31, August 2024. The DMCC Company shall apply for Corporate Tax registration before the deadline in order to avoid the administrative penalty. What if the license is expired at the time of Corporate Tax registration application submission? Please read for detailed information. Corporate Tax Registration for Companies Whose License is Expired

De-registration of Corporate Tax registration and deadline

The companies which are registered for Corporate Tax shall submit for de-registration at the event of stopping business and liquidating the license. DMCC Company liquidated the license on 15, July 2024 and shall submit an application for cancelling the Corporate Tax registration. This application shall be submitted within 20 working days from the date of liquidation of the license. Failure to apply to de-register before the deadline, an administrative penalty of AED 1,000 per month may impose and not more than AED 10,000/-

Corporate Tax Return filing and deadline

The deadline for Corporate Tax return filing is within 9 months from the end of the tax year. The DMCC Company is liquidated on 15, July 2024 and the tax year is from 01, January 2024 to 15, July 2024. The DMCC FZ Company shall file the Corporate Tax return within 9 months from the end of tax, i.e., 15, April 2025.

Failure to file the Corporate Tax return on time can attract an administrative penalty of AED 500 per month for the first 12 months and AED 1000 per month from the 13th month of delay.

Once the DMCC FZ Company applies for a de-registration application before the specified deadline, Federal Tax Authority reviews the application and provides a pre-approval of Corporate Tax de-registration, if the application and supportive documents are correct. Along with pre-approval of de-registration, FTA asks to submit the final Corporate Tax return for the period of 01, January 2024 to 15, July 2024. If any Corporate Tax is required to be paid, the tax amount also shall be paid before the deadline (within 9 months from the end of the tax year, i.e. 15, April 2025)

Final Corporate Tax De-Registration Certificate 

Upon filing the final Corporate Tax return and Corporate Tax payment, if applicable, FTA issues the final Corporate Tax De-Registration Certificate.

Importance of complying with the timeline and repercussions of non-compliance
Let us assume the DMCC FZ Company did not apply for Corporate Tax with the assumption that the company is liquidated and no need to do Corporate Tax registration. In the month of December 2028 Federal Tax Authority issued a notice to the DMCC FZ Company for the violation.

The expected penalties may be as follows.
➠ Administrative penalty of late registration – AED 10,000 /- (Deadline was 31, August 2024)
➠ Administrative penalty of late deregistration – AED 10,000/- (Deadline was approximately 15, August 2024)
➠ Administrative penalty for late tax return filings- The deadline was April 2025. Delay of first 12 months, AED 500 per month = AED 6,000/- (From April 2025 to March 2026). From the 13th month AED 1000 (From April 2026 to December 2028) AED 1,000* 33 months =AED 33,000/-

The approximate total administrative penalty can be expected to be around AED 59,000/-. This shows the importance of understanding the compliance of Corporate Tax law which will help you to avoid hefty penalties for small mistakes/ignorance.To learn more about the What is the obligation of companies who are liquidated in the first Corporate Tax year?

To learn more about What is the Obligation of Companies Who are Liquidated in the First Corporate Tax Year?, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.