Understanding the Financial Reporting Requirements Under UAE’s Federal Decree Law No. 47 of 2022 for Taxable Income
Article 20(1) of the Federal Decree Law No. 47 of 2022 requires that the Taxable Income of a Taxable Person shall be determined based on the standalone financial statements which is prepared for financial reporting purposes. These financial statements are to be prepared in accordance with the accounting standards accepted in the UAE. Further, Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods confirms that the accepted accounting standards to be applied by a Taxable Person in the UAE are the International Financial Reporting Standards (IFRS) and a Taxable Person deriving revenues of less than or equal to AED 50,000,000.00 may apply IFRS for SME (Small and Medium enterprises).
The Growing Importance of IAS 12 in Light of UAE’s New Corporate Tax Law
With the introduction of the UAE Corporate Tax, the relevance of complying with IAS 12 becomes more important. IAS 12 is a part of the International Financial Reporting Standards (IFRS) that prescribes the relevant accounting treatment for income taxes (Corporate taxes). While all transactions and events of a company are recorded in the books of accounts of a company, it is also necessary for all the tax consequences of transactions and events to be recorded in the books of accounts. IAS 12 governs the accounting rules for recording such tax consequences. This means that the company must recognize current tax assets and liabilities and deferred tax assets and liabilities in the books of accounts.
Difference Between Current and Deferred Tax Assets and Liabilities in UAE Corporate Accounting
While the current tax assets and liabilities are the amounts that an entity expects to pay or receive, either for the current or subsequent tax periods from the tax authorities, deferred tax assets and liabilities represent the future tax consequences of all temporary timing differences. As a result, these balances of current and deferred assets or liabilities are to be reported and disclosed separately. Typically, deferred tax assets and liabilities are disclosed as non-current items in the books of accounts. The income tax expense in the profit or loss account is the aggregate of the current and deferred tax expenses. This income tax expense will always be presented as a separate line item in the profit or loss account.
Key Steps Businesses Need to Take for Effective Tax Accounting and Compliance in the UAE
IAS 12 also requires certain disclosures to be made in the books of accounts, such as the accounting policies used around income taxes, details of the nature and amount of the temporary timing differences, and so on. Therefore, businesses must consider the need to engage an expert to assist with the following, in addition to other compliances, as warranted by the UAE Corporate Tax Law:
- Review existing accounting systems to ensure the same is in line and ready for tax accounting.
- Ensuring maintenance of accurate accounting records for tax and reporting purposes.
- Assistance with the necessary accounting standard compliance as required by law.
- Performing the necessary tax calculations.
- Ensuring timely tax compliance concerning filing and payments to tax authorities.
Given the complexities involved, it may be wise to seek professional guidance. Our specialized Tax Consulting Services offer comprehensive solutions tailored to meet your business needs, ensuring you’re well-prepared for the tax accounting and reporting requirements mandated by UAE law.
