The Federal Tax Authority (FTA) has released a comprehensive Corporate Tax (CT) Guide on Accounting Standards and their interaction with Corporate Tax. This document provides detailed guidance on accepted accounting standards, taxation under the realization basis of accounting, adjustments to accounting income, and transitional rules.

Key Highlights of the UAE Corporate Tax System:
Taxable Income: Determined based on standalone financial statements. The International Financial Reporting Standards (IFRS) is the only accepted Accounting Standard in the UAE for CT purposes. IFRS for SMEs is permitted if a Taxable Person’s revenue does not exceed AED 50 million in a tax period.
Cash Basis Accounting: Taxable Persons can opt for cash basis accounting if their revenue does not exceed AED 3 million in a tax period or under exceptional circumstances.
Election for Taxation on Realization Basis: This election can be made when submitting the first Corporate Tax return. The guide elaborates on Ministerial Decision 134 of 2023, providing examples of depreciation tax adjustments and other scenarios.
Adjustment for Related Party Transactions: When transaction prices are not at arm’s length, corresponding tax adjustments are required by both parties. The guide includes examples and necessary adjustments to achieve arm’s length results.
Transactions within a Qualifying Group: The guide explains that gains not considered for CT purposes by the transferor cannot be depreciated by the transferee. Detailed examples of these adjustments are provided.
Replacing Equity Method with Cost Method: For investments in associates and joint ventures, only dividends and profit distributions should be recognized, not the share of profit or loss.
Non-Deductible Expenses: Expenditures not meeting conditions under Articles 28 to 33 of CT Law are non-deductible regardless of financial statement treatment.
Adjustments under Transitional Rules: Taxable gains are limited to portions arising after the start of the first tax period. Examples of tax-exempted gains for various assets are included, with valuations determined by relevant authorities.
Subsequent Movements in Other Assets or Liabilities: The Corporate tax treatment follows the accounting treatment. For instance, reversals of provisions recorded before CT application are taxable when credited.
Arm’s Length Principle for Opening Balance Sheet: Related party balances must reflect arm’s length pricing. Non-arm’s length amounts require adjustments in the first and subsequent tax periods.
Next Steps:
The guide provides clarity on key Corporate Tax adjustments with useful illustrations. It is crucial for taxpayers to consider this guide and determine its impact on their taxable income. Accurate financial records are essential for tax compliance, identifying deductions, and minimizing penalties. Staying updated on evolving UAE CT legislation is vital for tax efficiency.
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