The incorporation of corporate tax in UAE has introduced a deeper layer of complexity in financial reporting. Since its onset in 2023, corporate tax has shifted the dynamics of UAE’s taxation framework, causing significant changes in the creation of financial statements, and the subsequent calculation of taxable income. Although, accounting net profit is the foundation, the calculation of taxable income requires necessary adjustments as underlined by the UAE CT law.Â
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To help you make the essential UAE corporate tax adjustments to the financial statements for arriving at final tax liability, it is highly recommended to seek help from corporate tax consultants in UAE.Â
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Listing the UAE Corporate Tax Adjustments to the Financial Statements
Given that the corporate tax law in the UAE demands specific adjustments to the financial statements, due diligence needs to be undertaken to ensure the same. As a result, the specific adjustments to the accounting net profit reported in the financial statement are the key to ensuring the alignment of taxable income with regulations outlined by corporate tax in UAE.
Here’s a list of key areas requiring adjustments:Â
Unrecognised Gains and Losses
As per the CT laws, the treatment of unrecognised gains and losses largely depends on the election choice regarding the realisation principle. In tandem, this principle dictates that upon the recognition of profits or losses in the audit books, businesses may have to make adjustments for the unreleased items based on their chosen approach.Â
Exempt Income
In a move to avoid instances of double taxation, the corporate tax in UAE clearly underlines certain income categories, such as dividends and other profits received from UAE resident companies to be exempted from CT. However, these exempt amounts need to be added back to the accounting net profit when calculating taxable income.Â
Intra Group Transactions
The CT regulations offer special treatment for transfers of assets or shares within a ‘Qualifying Group’. In a nutshell, intragroup transactions include the transactions between a parent company and its subsidiaries or between subsidiaries within the tax group. As a result, any gains or losses arising from such transactions might be subjected to adjustments to avoid double taxation within the group structure.Â
Business Restructuring
Defined under the Article 27 of the corporate tax law, there are specific provisions for profits or losses arising from business restructuring transactions that are to be followed. Thus, businesses are obligated to make adjustments to such transactions, and to help you through this process, one should always seek assistance from a tax consultant in the UAE.
Disallowed Deductions
It is fundamental to note that not all expenses recognised for accounting purposes are tax deductible. The CT regulations specify certain deductions that are not permissible for tax purposes. In regards, these disallowed deductions are to be included to the accounting net profit when it comes to calculating the taxable income.Â
Related Party Transactions and Group Tax Losses
Every transaction with related parties or connected persons is subjected to substantial scrutiny as per the arm’s length principle. In tandem, if the UAE authorities determine the transaction wasn’t conducted at market value, you may have to make adjustments to your taxable income. Additionally, the CT allows for transferring tax losses within a group under specific conditions, thereby knowing the potential adjustments for such transfer is critical.Â
Tax Incentives and Ministerial Adjustments
Given that the UAE government offers various tax incentives and reliefs to support business growth, these incentives might result in deductions in taxable income. At the same time, the corporate tax in UAE empowers the Minister to specify additional adjustments which highlights the need to stay updated with any ministerial pronouncements for precise tax calculation.Â
Hence, reconciling accounting net profit with taxable income demands an in-depth understanding of the UAE corporate tax and its implications on financial statements. With this in mind, consulting with qualified tax consultants in UAE is a strategic imperative to ensure compliance and make accurate adjustments. This will go a long mile in ensuring precise tax filing, along with avoiding potential penalties from the authorities.    Â