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What Accounting Standards Should Be Applied When Preparing Financial Statements for Corporate Tax Purposes in the UAE?

24.07.2024

The applicable standards for preparing financial statements for corporate tax purposes are outlined in Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

The primary criterion for determining the applicable reporting standard is the company’s revenue, based on which it falls into one of three categories:

1. Category 1: Revenue not exceeding AED 3,000,000
   • Companies in this category are permitted to use the cash accounting method.
   • In exceptional cases, a company may qualify for this category by submitting an application to the Federal Tax Authority.
2. Category 2: Revenue not exceeding AED 50,000,000
   • Companies in this category are allowed to use the International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs).
3. Category 3: Revenue exceeding AED 50,000,000
   • Only full IFRS standards are applicable for this category.

Regardless of the accounting standards applied, the financial statements must include the following components (as per Article (1) Definitions of Ministerial Decision No. 114 of 2023):

• Balance Sheet
• Statement of Profit or Loss and Other Comprehensive Income
• Statement of Changes in Equity
• Statement of Cash Flows
• Specific requirements depending on the type of applicable accounting standard.

The term "Revenue" for corporate tax purposes is defined in Chapter One — General Provisions, Article 1 — Definitions of Federal Decree-Law No. 47 of 2022 as follows:

Revenue: The gross amount of income derived during a Tax Period.

The use of definitions from Federal Decree-Law No. 47 of 2022 is further detailed in Article (1) Definitions of Ministerial Decision No. 114 of 2023.

Thus, when determining applicable accounting standards, organizations must consider all their income, including both revenue from core activities and other types of income not related to their primary business activities.

It is important to note that organizations in Category 1 and Category 2 are not prohibited by law from using full IFRS standards for accounting purposes if they choose to do so.