Understanding the Financial Year in UAE: Key Insights
The financial year is an important factor for individuals, businesses, and entities worldwide, as it is generally defined as a period of twelve months to calculate their budgets, profits and losses, taxes, etc.
Duration of the Financial year:
In the UAE, the financial year typically starts from 1st January to 31st December, aligning with the Gregorian calendar. This uniformity simplifies accounting processes. However, individuals and businesses may choose different financial years as long as it complies with the laws and regulations. Usually, in cases of businesses being a part of group companies, they could follow the financial year aligning with the requirements of the group company.
For newly incorporated businesses, the first financial year can extend beyond twelve months but must remain under eighteen months. Therefore, if a business is incorporated on or after July, the first financial year could span from the month of incorporation to December of the following year. However, such a business also has the option of selecting a financial year shorter than 12 months for the first year, followed by 12-month periods in subsequent years.
For instance, ABC Ltd was incorporated in the month of August 2024. ABC Ltd has the below two choices for financial year:
- First financial year ranging from August 2024 till December 2025 totaling to 17 months.
- First financial year of August 2024 to December 2024 and subsequently, January 2025 to December 2025.
What does corporate tax laws say?
The financial year determined as above (12 months, within 18 months in the case of newly incorporated businesses) holds good for corporate tax purposes. However, the Corporate Tax (CT) Registration Certificate must clearly mention the choice of the business.
Pro tip: If any deviation is seen between the choice in the CT registration certificate and the actual practice, then the CT registration certificate must be amended.
In case of corporate tax filing for the year 2024, books of accounts must be maintained for the whole of 2024, which is from 1st January 2024 to 31st December 2024. We, BCL Globiz, can help you maintain the books of accounts and also assist you in compiling the corporate tax returns.
For businesses that opted for the financial year as the calendar year, i.e., 1st January 2024 to 31st December 2024, the due date of the first corporate tax returns falls on 30th September 2025.
Avoid common errors when filing VAT returns in the UAE to stay compliant with local tax regulations.
Procedure to select financial year in the UAE:
Generally, the financial year will be included in the Memorandum of Association (MOA) of the business. If this information is not included, then a board resolution must be passed by the managers or directors of the business. Typically, the MOA issued by most of the Freezones includes this information. However, an example of non-inclusion of financial year would be Meydan Freezone. In such cases, board resolution must be passed to formally establish the financial year for the business. This resolution should outline the chosen financial year dates and be documented accordingly to ensure compliance with regulatory requirements.
Importance of Financial year:
- Taxation:
UAE is known for its tax free environment. However, with introduction of Corporate tax laws in June 2023, taxation has been brought into focus. Companies must align their books of accounts for each of the financial year to comply with the provisions.
- Forecasting:
Businesses plan their annual budgets and forecast revenues and expenses based on the financial year, enabling them to analyze and monitor expenses and revenues effectively.
- Evaluation of performance:
A clear demarcation of periods helps businesses analyze comparable data and generate reports that can be used by management for informed decision-making.
- Submission of reports to Freezone authorities:
Many Free Zones require periodic financial statements, whether audited or unaudited, to be submitted regularly. Adopting a financial year and adhering to it brings transparency to these matters.
Prepare your business for the financial year-end by following this comprehensive accounting checklist.
We at BCL Globiz, provide a comprehensive package that includes accounting, VAT filings, and corporate tax return filings all under one roof. Reach out to our experts at punith@bclglobiz.com.
You may also be interested in our blog on- “How to Prepare for an Audit in Dubai?”
