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Federal Tax Authority Issues Guide on Accounting Standards and Interaction with Corporate Tax

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Pavitra Shetty

Published on November 14, 2023, 09:21:04

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corporate tax

The Federal Tax Authority (FTA) of the UAE has released a directive regarding accounting standards and their interaction with corporate income tax.

According to the directive, the only accounting standards recognized in the UAE for corporate income tax considerations are the International Financial Reporting Standards and the International Financial Reporting Standard tailored for small and medium-sized entities.

It outlines that the cost method of accounting will be determined as per the definition provided in the International Financial Reporting Standards or an alternative method equivalent to the accounting standards used by the taxable individual.

 Additionally, the guide specifies that the equity method of accounting will be determined based on the definition found in the International Financial Reporting Standards or an alternative method equivalent to the accounting standards applied by the taxable individual.

Each taxable individual's taxable income will be independently ascertained using appropriately compiled, unconsolidated financial statements designed for financial reporting in accordance with the recognized accounting standards for corporate income tax purposes in the UAE.

Taxable individuals are mandated to employ the International Financial Reporting Standards as the sanctioned accounting standards in the UAE for corporate income tax purposes.

However, taxable individuals are eligible to utilize the International Financial Reporting Standard for small and medium-sized entities only if their revenue is below 50 million AED in a given tax period. Failure to meet this revenue criterion compels them to adopt the International Financial Reporting Standard.

Those exempted from Corporate Income Tax Law can choose alternative accounting standards. However, in the case of an exempted entity, particularly a government entity, government-controlled entity, extractive business, or non-extractive natural resource business, that holds business activities treated as separate taxable entities under the Corporate Income Tax Law, International Financial Reporting Standards or the International Financial Reporting Standard for small and medium-sized entities must be used for arranging financial statements for that taxable activity.

Furthermore, auditors are required for private pension or social security funds that have applied to the Authority and been granted an exemption from corporate income tax.

For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004Follow The Law Reporters on WhatsApp Channels.

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