# Financial Year in UAE: Definition, Compliance, and Tax Implications

## Key Takeaways

- The financial year in the UAE is typically the Gregorian calendar year, from **1 January to 31 December**, or another 12-month period for which a company prepares its financial statements.
- Companies may choose alternative financial year periods during incorporation, subject to the requirements of the UAE Commercial Companies Law.
- The selected financial year directly affects corporate tax filing deadlines and compliance obligations.

## What Is the Financial Year in the UAE?

The financial year in the UAE is the period used by businesses to prepare financial statements and calculate tax obligations. Under UAE law, companies may follow the Gregorian calendar year or choose another 12-month period that aligns with their business operations.

For companies subject to the UAE Commercial Companies Law, the financial year forms the basis for corporate tax calculations, VAT reporting, and regulatory compliance. Under the UAE Corporate Tax Law, the chosen financial year becomes the company’s **tax period**.

## Standard Financial Year Periods and Alternatives

UAE businesses have flexibility in choosing their financial year. Common options include:

| Financial Year Period | Who Can Use | Compliance Notes | Tax Impact |
| --- | --- | --- | --- |
| 1 Jan – 31 Dec | All companies; default option | Aligns with the calendar year | Tax return due by 30 September |
| 1 Apr – 31 Mar | Companies with Indian or UK operations | May require FTA approval | Tax return due by 31 December |
| 1 Jul – 30 Jun | Companies with Australian operations | Must align with business needs | Tax return due by 31 March |

## UAE Corporate Tax Returns: First Filing and Compliance

The UAE Corporate Tax Law introduced a new era of taxation for businesses operating in the UAE. A key concept under the law is the **first tax period**, which is linked to the company’s chosen financial year.

A corporate tax return must be filed within **9 months from the end of the tax period**. Accordingly, the first corporate tax return must be filed within 9 months from the end of the first tax period applicable to the taxable person.

The Corporate Tax Law applies to tax periods commencing on or after **1 June 2023**.

### Meaning of Tax Period

A **tax period** is the financial year, or part of a financial year, for which a tax return is required to be filed.

### Meaning of Financial Year

The financial year of a taxable person is the Gregorian calendar year or the 12-month period for which the taxable person prepares financial statements.

Because the term “tax period” required clarification, a public clarification was issued on **30 July 2024** explaining the first tax period applicable to different taxable persons.

| Sl. No. | Nature of Taxable Person | First Tax Period |
| --- | --- | --- |
| a | Resident juridical person subject to the Commercial Companies Law | The financial year followed under the Commercial Companies Law is accepted as the financial year and therefore as the tax period for Corporate Tax Law purposes. The first financial year under the Commercial Companies Law may be between 6 and 18 months, not necessarily 12 months. |
| b | Non-resident juridical person with a permanent establishment in the UAE | The first tax period is the financial year, or part thereof, beginning when the permanent establishment first began operations. If activities began before 1 June 2023, the first tax period is the first financial year commencing on or after 1 June 2023. |
| c | Resident person incorporated in a foreign jurisdiction but effectively managed and controlled in the UAE | The first tax period is the financial year, or part thereof, commencing on or after 1 June 2023. |

## Selecting or Changing a Company’s Financial Year

Choosing the right financial year is important for business operations and compliance.

### During Company Incorporation

- Specify the preferred financial year in the Memorandum of Association.
- Ensure the first financial year is between **6 and 18 months**, as required by the Commercial Companies Law.
- Consider alignment with the parent company or major operating markets.

### Changing the Financial Year After Incorporation

Changing a financial year may involve:

- A board resolution approving the change.
- Amendment of the Memorandum of Association.
- Notification to relevant authorities, such as the DED and FTA.
- Updates to banks and other stakeholders.

## Financial Year and Corporate Tax Compliance in the UAE

The chosen financial year directly affects corporate tax obligations, including:

- **Tax return filing:** due within 9 months of the financial year-end.
- **Tax payment:** due with the tax return filing.
- **Financial statements:** must be prepared for each financial year.
- **Record keeping:** records must be maintained for each financial year period.

For management consultants, IT companies, trading firms, and similar businesses, aligning the financial year with the business cycle can support better cash flow and compliance planning.

## Detailed Analysis: Resident Juridical Persons Subject to Commercial Companies Law

For a resident juridical person subject to the UAE Commercial Companies Law:

1. The first financial year of a newly incorporated company starts from the date of incorporation and must be not less than 6 months and not more than 18 months.
2. Subsequent financial years must be consecutive 12-month periods beginning immediately after the preceding financial year ends.
3. The company must prepare financial statements for each financial year.
4. The tax period depends on the financial year for which the taxable person prepares financial statements, unless a different basis is approved by the FTA.
5. The first tax period of a newly incorporated company depends on the first financial year under the Commercial Companies Law.

Three scenarios may arise for a newly incorporated company:

- The first financial year is 12 months.
- The first financial year is between 6 and 12 months.
- The first financial year is between 12 and 18 months.

Where the first financial year commences before **1 June 2023**, the first tax period will be the subsequent 12-month financial year commencing on or after 1 June 2023.

## Examples: Businesses Incorporated Before 1 June 2023

| Incorporated On | Financial Year Followed | First Financial Year | Duration | First Tax Period | Subsequent Tax Period | First Tax Return Due Date |
| --- | --- | --- | --- | --- | --- | --- |
| 01-Feb-23 | 1 Jan – 31 Dec | 1 Feb 2023 – 31 Dec 2023 | 11 months | 1 Jan 2024 – 31 Dec 2024 | 1 Jan 2025 – 31 Dec 2025 | 30-Sep-25 |
| 01-Feb-23 | 1 Apr – 31 Mar | 1 Feb 2023 – 31 Mar 2024 | 14 months | 1 Apr 2024 – 31 Mar 2025 | 1 Apr 2025 – 31 Mar 2026 | 31-Dec-25 |
| 01-Feb-23 | 1 Sept – 31 Aug | 1 Feb 2023 – 31 Aug 2023 | 7 months | 1 Sept 2023 – 31 Aug 2024 | 1 Sept 2024 – 31 Aug 2025 | 31-May-25 |

## Examples: Businesses Incorporated On or After 1 June 2023

| Incorporated On | Financial Year Followed | First Financial Year | Duration | First Tax Period | Subsequent Tax Period | First Tax Return Due Date |
| --- | --- | --- | --- | --- | --- | --- |
| 01-Jun-23 | 1 Jan – 31 Dec | 1 June 2023 – 31 Dec 2023 | 7 months | 1 June 2023 – 31 Dec 2023 | 1 Jan 2024 – 31 Dec 2024 | 30-Sep-24 |
| 05-Jun-23 | 1 Jan – 31 Dec | 5 June 2023 – 31 Dec 2023 | 6 months 26 days | 5 June 2023 – 31 Dec 2023 | 1 Jan 2024 – 31 Dec 2024 | 30-Sep-24 |
| 01-Jul-23 | 1 Jan – 31 Dec | 1 July 2023 – 31 Dec 2023 | 6 months | 1 July 2023 – 31 Dec 2023 | 1 Jan 2024 – 31 Dec 2024 | 30-Sep-24 |
| 16-Aug-23 | 1 Jan – 31 Dec | 16 Aug 2023 – 31 Dec 2024 | 16 months 16 days | 16 Aug 2023 – 31 Dec 2024 | 1 Jan 2025 – 31 Dec 2025 | 30-Sep-25 |
| 11-Jun-23 | 1 Apr – 31 Mar | 11 Jun 2023 – 31 Mar 2024 | 9 months 20 days | 11 Jun 2023 – 31 Mar 2024 | 1 Apr 2024 – 31 Mar 2025 | 31-Dec-24 |
| 02-Jan-24 | 1 Apr – 31 Mar | 2 Jan 2024 – 31 Mar 2025 | 14 months 30 days | 2 Jan 2024 – 31 Mar 2025 | 1 Apr 2025 – 31 Mar 2026 | 31-Dec-25 |
| 06-Jul-23 | 1 Sept – 31 Aug | 6 July 2023 – 31 Aug 2024 | 13 months 26 days | 6 July 2023 – 31 Aug 2024 | 1 Sept 2024 – 31 Aug 2025 | 31-May-25 |
| 20-Dec-23 | 1 Sept – 31 Aug | 20 Dec 2023 – 31 Aug 2024 | 8 months 12 days | 20 Dec 2023 – 31 Aug 2024 | 1 Sept 2024 – 31 Aug 2025 | 31-May-25 |

## Thresholds and Pro-Rating for First Tax Periods

Where the first tax period is more or less than 12 months, a pro-rata approach should **not** be applied to the following thresholds:

- AED 375,000 threshold for applicability of UAE Corporate Tax.
- Threshold for Small Business Relief.
- Threshold for applicability of audited financial statements.
- Threshold for preparing financial statements using the cash basis of accounting.
- Threshold for preparing financial statements using IFRS for SMEs.
- Requirement to prepare a master file and local file for a constituent entity of a multinational enterprise.
- De-minimis requirement thresholds.

However, where the relevant tax period is more or less than 12 months, the de-minimis limit for the **General Interest Deduction Limitation Rule** — AED 12 million — must be adjusted in proportion to the length of the tax period.

## Financial Year and VAT Compliance

VAT returns are generally filed quarterly, regardless of a company’s financial year. However, the chosen financial year may affect:

- **Annual VAT reconciliation**, which should align with financial statements.
- **Audit requirements**, as VAT audits typically follow the financial year.
- **Record keeping**, where VAT records are organized by financial year period.

## Financial Year for Mainland and Free Zone Companies

Mainland and free zone companies follow the same broad financial year principles, with some additional considerations:

- **Mainland companies** must comply with Commercial Companies Law requirements.
- **Free zone companies** may have additional requirements imposed by their free zone authority.
- **Both mainland and free zone companies** are subject to UAE Corporate Tax Law from 1 June 2023.

A detailed analysis of the first tax period for non-resident juridical persons with a permanent establishment, and for foreign-incorporated entities effectively managed and controlled in the UAE, is to be addressed separately.

## Frequently Asked Questions

### What is the tax period in the UAE?

The tax period in the UAE is the financial year, or part thereof, for which a tax return is required to be filed. It typically aligns with the company’s chosen financial year and forms the basis for corporate tax calculations.

### What is the current financial year in the UAE?

For most companies following the calendar year, the financial year runs from **1 January to 31 December**. Companies may also choose alternative 12-month periods based on business needs.

### Can a company choose a different financial year in the UAE?

Yes. Companies can choose alternative financial year periods during incorporation or change them later through proper legal procedures. The choice must be specified in the Memorandum of Association and may require FTA approval for tax purposes.

### How does the financial year affect corporate tax and VAT deadlines?

The financial year determines when corporate tax returns are due, which is within 9 months of the financial year-end. It also affects the timing of annual financial statement preparation. VAT returns generally remain quarterly regardless of the chosen financial year.

## Conclusion

Understanding the first tax period and selecting the appropriate financial year can be challenging for UAE businesses. Professional advice from tax experts and accountants familiar with UAE regulations can help businesses determine the correct tax period, calculate taxable income and tax liabilities, and meet filing obligations.

BCL Globiz supports UAE businesses with practical guidance on:

- Determining the appropriate tax period.
- Calculating taxable income and corporate tax liabilities.
- Ensuring compliance with UAE tax regulations.
- Addressing tax-related questions and concerns.

By applying the first tax period rules correctly and complying with related obligations, businesses in the UAE can establish a strong foundation for their tax affairs and reduce compliance risks.