Corporate Tax Guide | CTGACS1

The Corporate Tax Law stipulates that each Taxable Person must determine their Taxable Income based on standalone Financial Statements prepared in accordance with the accepted Accounting Standards in the UAE. Ministerial Decision No. 114 of 2023 specifies that the accepted Accounting Standards for Corporate Tax purposes are the International Financial Reporting Standards (IFRS) and the International Financial Reporting Standard for small and medium-sized entities (IFRS for SMEs).

IFRS

Taxable Persons are required to use IFRS as the accepted Accounting Standard for Corporate Tax purposes.

IFRS for SMEs

Taxable Persons with Revenue not exceeding AED 50 million in a Tax Period may opt to use IFRS for SMEs, subject to meeting the Revenue requirement. IFRS for SMEs cannot be used as the default Accounting Standard; IFRS must be used if the Revenue requirement is not met.

Non-Compliance with IFRS

Failure to use IFRS or IFRS for SMEs for calculating Taxable Income is considered a violation of the Corporate Tax Law and may result in administrative penalties. However, for purposes other than Corporate Tax, Taxable Persons may use different accounting standards as long as relevant calculations and reporting for Corporate Tax purposes are prepared using IFRS or IFRS for SMEs.

Exempt Persons, such as Government Entities, Government Controlled Entities, Extractive Businesses, or Non-Extractive Natural Resource Businesses, may use other accounting standards. If such entities have separate taxable Business Activities, they are required to use IFRS or IFRS for SMEs for preparing the Financial Statements for those activities, even if the conditions for exemption are not met subsequently.

Revenue and Expenditure Determination

The amount and timing of Revenue and expenditure are determined by the Accounting Standards for the purpose of calculating Taxable Income, subject to specific adjustments as prescribed by the Corporate Tax Law, such as disallowing non-deductible expenditure.

Financial Statements of a Tax Group

A Tax Group must prepare consolidated Financial Statements (using IFRS or IFRS for SMEs) by aggregating the standalone Financial Statements of the Parent Company and each Subsidiary within the group, treating the group as a single Taxable Person. Transactions between group members should adhere to the arm’s length principle.

Audit Requirement for Financial Statements

Taxable Persons with Revenue exceeding AED 50 million during the relevant Tax Period and all Qualifying Free Zone Persons must prepare and maintain audited Financial Statements in accordance with the relevant legislation. If a Tax Group surpasses the Revenue threshold, the consolidated Financial Statements of the group must be audited. Private pension or social security funds exempt from Corporate Tax must also have an Auditor to confirm compliance with Ministerial Decision No. 115 of 2023 on an annual basis.

Summary

In summary, the Corporate Tax Law in the UAE mandates the use of International Financial Reporting Standards (IFRS) or International Financial Reporting Standards for small and medium-sized entities (IFRS for SMEs) for calculating Taxable Income.

Failure to comply may result in penalties. Exempt entities, including certain government and natural resource businesses, must also adhere to these standards, even if their exemption status changes.

The Accounting Standards determine Revenue and expenditure calculations, with specific adjustments allowed by the law. For Tax Groups, consolidated Financial Statements are required, following the arm’s length principle for transactions between members. Additionally, entities exceeding AED 50 million in Revenue and Qualifying Free Zone Persons must maintain audited Financial Statements, while pension or social security funds must also obtain annual Auditor confirmation of compliance with relevant regulations.

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