[World Tax News ] UAE Releases Public Clarification to Raise Awareness of the First ‘Tax Period’ and More

Editorial Team – [2024] 165 taxmann.com 634 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UAE releases public clarificationto raise awareness of the first ‘Tax Period’

The Federal Tax Authority (FTA) confirmed that the first Tax Period of a newly established company, in respect of a juridical person subject to Corporate Tax, is determined by the first Financial Year, as stipulated under the Commercial Companies Law. The Corporate Tax Law applies to Tax Periods commencing on or after 1 June 2023, and the Tax Period for the Taxable Person is the Financial Year or part thereof for which a Tax Return is required to be filed.

The Public Clarification also addresses the timeline for Tax Deregistration in case of the cessation of Businesses or Business Activities before or during the first Tax Period. The FTA issues Public Clarification to enhance tax awareness among business sectors and achieve optimal tax compliance.

According to the Public Clarification, if the Financial Year under the Commercial Companies Law is not a standard 12-month period but ranges between 6 and 18 months, the FTA accepts this period as the first Tax Period for Corporate Tax purposes. However, if the first Financial Year begins before 1 June 2023, the first Tax Period will be the subsequent 12-month Financial Year that begins on or after 1 June, 2023, with each subsequent Tax Period being the 12 months following the end of the first Tax Period.

Further, this clarification outlines the instances of the first tax period in the case of juridical persons that are incorporated, formed or established under the Commercial Companies Law, whose first Financial Year under the Commercial Companies Law may not necessarily be 12 months, but instead can be a period between 6 months and 18 months, for a Non-Resident Person who has a Permanent Establishment in the UAE.

Source: Public Clarification on first Tax Period for a juridical person

2. Singapore publishes e-Tax Guide on filing income tax computation in functional currencies other than Singapore Dollars

The Inland Revenue Authority of Singapore (IRAS) has released a revised e-Tax Guide titled Filing of Income Tax Computations in Functional Currencies other than Singapore Dollars (Second Edition). This guide outlines the regulations for submitting income tax computations in currencies other than SGD, specifically for businesses that prepare their financial statements in non-SGD functional currencies. This latest edition, which replaces the 2012 version, incorporates several updates and editorial changes, along with removing outdated information.

Companies must prepare their financial statements in their functional currencies, which may be in non-SGD, for accounting periods starting on or after January 1, 2003. Sole proprietorships and partnerships also have the option to prepare their financial statements in non-SGD functional currencies. When a company, sole proprietorship, or partnership prepares its financial statements in a non-SGD functional currency, the tax computation must likewise be prepared in the same currency. This requirement applies to all items within the tax computation up to:

(a) The chargeable income for a company (after applying partial or full tax exemptions);

(b) The distributable profit/loss, other income, and capital allowances (CA) claimed for a partnership; and

(c) The adjusted profit/loss (before accounting for any losses brought forward) and the CA claimed for a sole proprietorship.

These three items will then be converted into SGD using the average exchange rate for the relevant Year of Assessment. If a business changes its functional currency from SGD to a non-SGD currency, it must translate its existing SGD balances into the new non-SGD functional currency. Businesses can choose to use either the changeover rate or the average rate method for this translation. This choice must be made when the tax computation is first submitted in non-SGD functional currencies, and once selected, it cannot be changed. In addition to the existing SGD balances, there may be other items that also require translation.

Source: IRAS e-Tax Guide on Filing of Income Tax Computations in Functional Currencies other than Singapore Dollars (Second Edition)

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