On November 6, 2023, the UAE Federal Tax Administration released guidance on how corporate tax and accounting rules interact. The UAE Federal Tax Authority has introduced publications and guidelines covering many facets of UAE company tax law. Furthermore, a lot of organizations need help comprehending the new guidelines fully.  

Furthermore, some people interpret the latest upgrades incorrectly. Therefore, companies should pay attention to the update and continue to operate in non-compliance. Every business must also keep up with the latest changes to accounting standards and corporate tax legislation.  

These are the typical problems that companies run across every time the FTA releases a new corporation tax handbook.  

• Technical language and jargon  

• The lengthy and complex guide   

• Frequent changes and updates   

• Lack of clarity about the topic   

• Lack of proper training and resources   

• Impacts on business operations  

• Difficulties in interpreting and applying the guides  

These elements may provide difficulties each time the FTA releases a new corporation tax guide. You don’t need to worry, though, because ebs chartered accountants is here to help. Additionally, you can obtain comprehensive advice regarding the guides from the top bookkeeping and accounting firms in the United Arab Emirates.  

Purpose of the Corporate Tax Guide  

Companies prepare their financial accounts according to a set of rules and principles known as accounting standards. Additionally, accounting standards are meant to guarantee the accuracy and fairness of financial reporting. Therefore, the corporate tax guide’s goal is to give tax professionals a thorough understanding of how accounting standards and company tax interact.  

Among the many subjects covered in the guide are:  

 The application of accounting standards to corporate tax   

• Preparation of tax returns and other tax documentation   

• The impacts of changes in accounting standards on corporate tax   

• The resolution of tax disputes  

 Who should use the corporate tax guide? 

The corporate tax guide is an effective resource for a wide range of tax professionals, which includes: 

• Tax lawyers   

• Tax compliance officers   

• Corporate tax managers   

• Tax accountants  

• Tax auditors   

Overview of UAE corporate tax   

A federal company tax system was implemented in the United Arab Emirates on June 1, 2023. Additionally, companies doing business in the UAE are subject to the new tax structure. Using financial documents, you can determine the taxable income for corporate tax. The International Financial Standards or International Financial Reporting Standards for Small and Medium-sized Entities should be followed when preparing these financial accounts.  

In the UAE, the usual corporate tax rate is 9%. However, corporations are not required to pay corporate tax if their annual profit rate is less than AED 375,000.  

Under UAE corporate tax law, the following organizations are regarded as taxable persons:  

• Individuals carrying on business in the UAE  

• Partnerships  

• Foreign companies with a permanent establishment in the UAE   

• Companies incorporated in the UAE  

The taxable base for corporate tax is a taxable person’s total revenue minus any authorized expenses and deductions.  

Additionally, taxable persons must submit annual tax returns to the FTA.  

Recognized Reporting and Accounting Standards  

According to UAE corporate tax law, taxable people must prepare financial statements for corporation tax purposes using IFRS or IFRS SMEs. IFRS and IFRS for SMEs are the only accounting standards utilized in the UAE for company tax purposes.  

IFRS for SMEs must be applied by taxable individuals whose total revenue during a tax period does not exceed AED 50 million. However, IFRS for SMEs should be kept as the default. If the taxable person achieves the revenue requirements, they must follow IFRS.  

Taxpayers must apply IFRS or IFRS for SMEs to determine taxable income under corporate tax rules. If you fail to comply, it will be considered a breach of company tax legislation. It may also result in administrative sanctions.  

Here are several major lessons from the tax groups.  

• Tax groups must create a consolidated financial statement. To calculate taxable income, Tax Groups must apply IFRS or IFRS for SMEs. If consolidated revenue exceeds AED 50 million, their financial accounts must be audited. 
• Subsidiaries and parent firms do not need separate financial accounts audited if their revenue exceeds AED 50 million. 

Accounting methods 

Accrual basis of accounting 

Expenditure and revenue are recorded when they are incurred or earned, not when they are paid or received. 

Revenue and expenses are added to taxable income during the tax period in which they are incurred and earned.  

Cash basis of accounting 

Revenue and expenditures can be recognized in the tax period in which they are paid or received.  

Companies with revenues of more than AED3 million must adopt the accrual basis of accounting.  

Small Business Relief 

Businesses with revenues of up to AED 3 million can apply for small business relief. Furthermore, it must prepare financial statements on the cash foundation of accounting.  

Accounting based on realisation 

The FTA’s corporate tax handbook is detailed and also discusses the realization foundation of accounting.  

Most notably, the basis for realizing accounting gains and losses is decided by revaluation or other changes in book value. Taxable People can choose to account for profits and losses on a realization basis.  

Fair value accounting also assesses the price at which an asset or liability would be sold or transferred under market conditions.  

Interaction with Corporate Tax  

Unrealized losses or gains resulting from changes in the value of an asset or liability are recorded in the financial accounts. Also, even if no transaction to realize such losses or gains has yet occurred. The decision to prosecute the realization foundation is irreversible. The FTA may revoke it in extraordinary circumstances and with its agreement.  

Unrealizable profits or losses are included in taxable income once they are realized.  

Conclusion  

We covered the main points from the corporate tax handbook. This blog detailed how to calculate taxable income using IFRS-compliant financial accounts. Furthermore, the site provided a thorough understanding of the complexity of company taxation and accounting rules. However, it isn’t easy to address all of the concerns in a blog post. It is important to contact the best accounting and bookkeeping firms in the UAE, such as ebs chartered accountants. You can go over all the criteria in detail. They offer some of the top business tax services in the UAE.  

In addition, we offer accounting and bookkeeping services, auditing, due diligence audit services, and many more. Also, contact our specialists immediately to learn more about our services.