Financial Reporting in the UAE

Many companies in the UAE are required to file financial or tax reports with the relevant authorities. Our experts can advise you on matters related to determining your company’s reporting period, the specifics of financial and tax reporting according to International Financial Reporting Standards (IFRS), and compliance with local legislation.

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Reports in UAE

01 Record keeping

For corporate tax purposes, the financial statements of companies must be prepared by accounting standards adopted in the UAE

International Financial Reporting Standards (IFRS) are the most commonly used accounting standard in the UAE.

Taxpayers must prepare and maintain financial records to calculate their taxable income and must maintain all documents and records supporting the information contained in the corporate tax return

Exempt persons are required to maintain all records proving their exempt status.

Income, deductions and credits of the taxpayer must be measured in the national currency of the UAE

Records and documents must be kept for at least seven years after the end of the relevant tax period. The Federal Tax Service may request the submission of financial statements along with the tax return or the provision of financial statements upon request.

02 Registration, filing and payment of corporate tax

All taxable persons (including those in the free zone) will be required to register for corporate tax purposes and obtain a corporate tax registration number.

Taxable persons are required to file a corporate tax return for each tax period within 9 months after the end of the relevant period. The same deadline generally applies to the payment of any Corporate Tax

Recommendations for preparing for corporate tax in the UAE

03 To assess what the regime in the UAE means for your business, as a starting point, you should:

Read the Corporate Tax Law and additional information available on the websites of the Ministry of Finance and the Federal Tax Service.
Analyze your business to determine if your business will be subject to corporation tax, and if so, from what date.
From the moment the law is officially published, transfer pricing comes into force, by this time it is necessary to check the business activities of your company for compliance

Taxes in the UAE

01 Income tax

On December 9, 2022, the UAE Ministry of Finance published Federal Decree-Law №(47) of 2022 on the taxation of corporations and businesses, which will come into force from the beginning of financial periods on or after June 1, 2023

Corporate tax is a form of direct tax levied on the net income of corporations and other businesses.

02 UAE CT Regime Entry Date

will come into force from the beginning of the financial period on or after June 1, 2023, specifically:

Companies whose fiscal year begins on July 1, 2023, and ends on June 30, 2024, are subject to corporation tax from July 1, 2023.
Companies whose fiscal year begins on January 1, 2023, and ends on December 31, 2023, are subject to corporation tax from January 1, 2024.

The taxable person

UAE companies and other legal entities that are registered or effectively managed and controlled in the UAE;
Individuals who conduct business or entrepreneurial activities in the UAE
Non-resident legal entities (foreign legal entities) with a permanent establishment in the UAE
Entities established in the UAE Free Zone are also subject to corporate tax as “taxable persons” and will be required to comply with the requirements set out in the Corporate Tax Law. However, a free zone person who meets the conditions to be considered an eligible free zone person may benefit from a 0% corporate tax rate on their eligible income based on an audit of the annual financial statements.

03 Tax Rates

Corporate tax will be charged at a general rate of 9% on taxable income over AED 375,000. Taxable income below this threshold will be subject to income tax at the rate of 0%.

04 Transfer pricing

The transfer pricing rules aim to ensure that transactions between related parties are carried out on market terms as if the transaction were between unrelated parties.

To avoid manipulation of taxable income, various articles of the Corporate Tax Law require that transactions with related parties and connected persons were based on their “market value”.

Related parties of an individual are considered to be relatives of an individual, as well as companies in which an individual alone or together with his Related Parties has a controlling interest (usually 50% or more of the company’s shares).

Similarly, a company’s related parties are any other companies in which the company alone or together with its Related Parties has a controlling interest (generally 50% or more of the company’s shares), or in which less than 50% of the total ownership

05 Related parties differ from related persons

A person will be considered “associated” with a business subject to the UAE CT if he:

Business owner
Director or officer of the enterprise
Related party of any of the above companies

Generally, taxpayers must apply one or more of the following methodologies to determine market value for transfer pricing purposes:

Comparable uncontrolled price method
Method of resale price
Cost-plus method
Net margin method under the deal
Profit-sharing method under the deal

Companies will be required to keep information about their transactions with related parties and related persons, and some companies will be required to provide this information along with their tax returns. Businesses that claim small business incentives will not be required to comply with the transfer pricing documentation rules.

06 Tax Group

Two or more taxable persons who meet certain conditions may apply to form a “Tax Group” and be treated as a single taxable person for corporate tax purposes. To form a tax group, both the parent company and its subsidiaries must be resident legal entities, have the same financial year, and prepare their financial statements using the same accounting standards

In addition, to form a tax group, a parent company must:

own at least 95% of the share capital of a subsidiary;
own at least 95% of the voting rights in a subsidiary;
is entitled to at least 95% of the profits and net assets of the subsidiary.

Ownership, rights and powers may be held directly or indirectly through subsidiaries, but the tax group cannot include an exempt person or a corresponding person in a free zone.

07 Recommendations for preparing for corporate tax in the UAE

To assess what the regime in the UAE means for your business, as a starting point, you should:

Read the Corporate Tax Law and additional information available on the websites of the Ministry of Finance and the Federal Tax Service.
Analyze if your business will be subject to corporation tax, and if so, from what date.
Since the law is officially published, transfer pricing comes into force, by this time it is necessary to check the business activities of your company for compliance
Bring the company’s financial statements into compliance with the requirements of IFRS to transfer the opening balances to the financial year. It will be the company’s first tax period
Check the document flow and documents for making payments and the availability of all closing documents, since the accrual principle is used in the UAE.
Examine the requirements for your business under the Corporate Tax Law
Register your company for corporation tax. This applies to exempt persons as well.