Filing your first UAE Corporate Tax (CT) return requires careful preparation, compliance with tax regulations, and accurate financial reporting. To avoid penalties, businesses must ensure they meet all accounting standards and understand the tax implications.
1. Follow IFRS or IFRS for SMEs
Businesses must prepare financial statements according to International Financial Reporting Standards (IFRS) or IFRS for SMEs, as per Ministerial Decision No. 114 of 2023.
- Companies with revenue above AED 50 million must use IFRS.
- Smaller businesses can opt for IFRS for SMEs.
- Incorrect IFRS application can lead to tax misstatements and compliance risks.
- Businesses without IFRS expertise should seek professional accounting support.
2. Audited Financial Statements are Mandatory
As per Ministerial Decision No. 82 of 2023, companies with revenue above AED 50 million and Qualifying Free Zone Persons (QFZPs) claiming the 0% Corporate Tax rate must have audited financial statements.
- Audits must be conducted by a UAE-registered auditor (Federal Law No. 41 of 2023).
- Failure to comply can result in penalties.
3. Understanding Unrealised Gains and Losses
Unrealised gains and losses happen when assets or liabilities change value without an actual transaction. Key examples include:
- Foreign currency fluctuations affecting liabilities.
- Asset revaluations impacting financial statements.
For tax purposes, these gains and losses are included in taxable income unless a realisation basis is chosen. Businesses must carefully assess the impact of fair value adjustments when preparing CT returns.
4. Choosing the Realisation Basis
Companies using the accrual accounting method can elect to use the realisation basis, where only realised gains and losses (from actual transactions) count towards taxable income.
- This election must be made in the first tax period.
- It is irrevocable, except in exceptional cases approved by the Federal Tax Authority (FTA).
5. Business Expense Deductions
To qualify for Corporate Tax deductions, business expenses must be:
- Wholly and exclusively for business purposes.
- Not capital in nature (i.e., not for asset purchases).
- Certain expenses, like entertainment and interest, have specific deduction rules.
Proper documentation is essential to avoid compliance issues and prove eligibility for deductions.
6. Steps for a Smooth Tax Filing Process
To ensure full compliance with UAE CT regulations, businesses should:
✅ Align financial statements with IFRS or IFRS for SMEs.
✅ Engage a UAE-registered auditor if revenue exceeds AED 50 million.
✅ Ensure QFZPs claiming the 0% CT rate have audited financial statements.
✅ Understand how unrealised gains and losses impact taxable income.
✅ Evaluate the benefits of electing the realisation basis.
✅ Seek professional tax consultation to avoid errors and penalties.
Expert Tax Guidance for Hassle-Free Filing
Navigating UAE Corporate Tax compliance can be complex. Mistakes in financial reporting or tax calculations can lead to penalties and legal issues.
At KGRN Chartered Accountants, we offer expert tax consultancy services to help businesses stay compliant. From financial statement preparation to tax return filing, our specialists provide tailored solutions.
