A Guide to UAE Corporate Tax Accounting Standards & Methods
Ever since the introduction of corporate tax in the UAE, the determination of taxable income has been a topic of interest among taxable persons. The UAE Corporate Tax Law states that the taxable income has to be determined based on the accounting standards accepted in the UAE. However, the Ministerial Decision No 114 of 2023 sheds more light on the Accounting Standards and Methods for the Purposes of the UAE Corporate Tax Law.
Taxable persons are advised to consult with corporate tax consultants in Dubai before taking any action on the basis of the new Ministerial Decision. In this article, we will delve deep into the provisions stated in the Ministerial Decision No 114 of 2023. Read ahead for more insights on the accounting standards & methods for determining taxable income under the UAE corporate tax:
Accounting Standards as per the Corporate Tax Law
Article 20 of the UAE Corporate Tax Law deals with the “General Rules for Determining Taxable Income”. It states “Taxable Income of each Taxable Person shall be determined separately, on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State.” Ministerial Decision No. 43 clarifies what accounting standards to use for the purpose of UAE corporate tax.
What would be applicable accounting standards in the UAE?
As per the Ministerial Decision, taxable persons are required to apply the International Financial Reporting Standards (“IFRS”) to comply with the UAE Corporate Tax Law. However, taxable persons deriving Revenue that does not exceed AED 50,000,000 (AED 50 Million) are allowed to apply International Financial Reporting Standards for small and medium-sized entities (“IFRS for SMEs”).
What do Financial Statements mean?
The Ministerial Decision No 43 of 2023 defines financial statements as a complete set of statements as specified under the Accounting Standards applied by the Taxable Person, which includes but is not limited to, a statement of income, statement of other comprehensive income, balance sheet, statement of changes in equity and cash flow statement. You can consult with corporate tax advisors in Dubai while preparing financial statements for the purpose of corporate tax.
When to prepare financial statements using cash basis accounting?
Cash accounting is an accounting method using which the taxable person recognises income and expenditure when cash payments are received and paid. Clause 5 (a) of the UAE Corporate Tax Law states that the Ministry of Finance may prescribe the circumstances and conditions under which a person may prepare financial statements using the cash basis of accounting. As per the Ministerial Decision No 43, a taxable person may prepare the financial statement using the cash basis accounting under any of the following instances:
- When a Person derives revenue that does not exceed AED 3 million
- In exceptional situations and as per an application submitted by the Person to the Federal Tax Authority (FTA).
Preparation of Consolidated Financial Statements of a Tax Group
The UAE Corporate Tax Law states the applicable accounting standards for tax groups. As per Clause 11 of Article 42 of the Law, a Tax Group need to prepare consolidated financial statements in accordance with accounting standards applied in the UAE. Ministerial Decision No. 43 offers clarification for the preparation of financial statements for corporate tax groups.
Article 3 of the Ministerial Decision clarifies that Consolidated Financial Statements of a Tax Group means the preparation of standalone Financial Statements based on the aggregation of the Standalone Financial Statements of the Parent Company and each Subsidiary that is a member of the Tax Group, eliminating the transactions between them. It is advisable to get the help of corporate tax consultants in Dubai while preparing the financial statements of a corporate tax group.
Hire the Leading Corporate Tax Services in Dubai, UAE
The Ministerial Decision No 43 of 2023 has clarified that for the purpose of calculation of the Taxable Income of a Taxable Person, the Taxable Person shall prepare accurate financial statements based on IFRS – being the applicable accounting standard in the UAE. However, you need to hire corporate tax consulting services in Dubai for making the financial statements accurate. Being one of the leading providers of corporate tax advisory services in Dubai, JCA can guide you on how to proceed with tax obligations.
Our corporate tax consulting services in Dubai include CT Assessment & Advisory Services (on a one-time or retainer basis), CT Transfer price assessment services, CT Compliance Services & CT Agent Services to Represent the Federal Tax Authority (FTA) of UAE in case of any notices served by FTA. Ensure corporate tax compliance and avoid relevant penalties by availing of JCA’s corporate tax services in Dubai, UAE. Talk to our consultants for tax solutions that you can count on.