Which accounting standards must be used for Corporate Tax?

Article 20 – General Rules for Determining Taxable Income 1. The Taxable Income of each Taxable Person shall be determined separately, on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State. 2. The Taxable Income for a Tax Period shall be the Accounting Income for that period, and to the extent applicable, adjusted for the following: a. Any unrealised gain or loss under Clause 3 of this Article. b. Exempt Income as specified in Chapter Seven of this Decree-Law. c. Reliefs as specified in Chapter Eight of this Decree-Law. d. Deductions as specified in Chapter Nine of this Decree-Law. e. Transactions with Related Parties and Connected Persons as specified in Chapter Ten of this Decree-Law. f. Tax Loss relief as specified in Chapter Eleven of this Decree-Law. g. Any incentives or special reliefs for a Qualifying Business Activity as specified Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 26 in a decision issued by the Cabinet at the suggestion of the Minister. h. Any income or expenditure that has not otherwise been taken into account in determining the Taxable Income under the provisions of this Decree-Law as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. i. Any other adjustments as may be specified by the Minister. 3. For the purposes of calculating the Taxable Income for the relevant Tax Period, and subject to any conditions that the Minister may prescribe, a Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realisation basis in relation to: a. all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards; or b. all assets and liabilities held on capital account at the end of a Tax Period, whilst taking into account any unrealised gain or loss that arises in connection with assets and liabilities held on revenue account at the end of that period. 4. For the purposes of paragraph (b) of Clause 3 of this Article: a. “Assets held on capital account” refers to assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets. b. “Liabilities held on capital account” refers to liabilities, the incurring of which does not give rise to deductible expenditure under Chapter Nine of this DecreeLaw, or liabilities treated under applicable accounting standards as noncurrent liabilities. c. “Assets and liabilities held on revenue account” refers to assets and liabilities other than those held on a capital account. d. An “unrealised gain or loss” includes an unrealised foreign exchange gain or loss. 5. Notwithstanding Clauses 1 and 3 of this Article, the Minister may prescribe any of the following for the purposes of this Decree-Law: a. The circumstances and conditions under which a Person may prepare financial statements using the cash basis of accounting. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 27 b. Any adjustments to the accounting standards to be applied for the purposes of determining the Taxable Income for a Tax Period. c. A different basis for determining the Taxable Income of a Qualifying Business Activity. 6. Subject to any conditions prescribed under Clause 5 of this Article, a Taxable Person can make an application to the Authority to change its method of accounting from cash basis to accrual basis from the commencement of the Tax Period in which the application is made or from the commencement of a future Tax Period. 7. In the case of any conflict between the provisions of this Decree-Law and the applicable accounting standards, the provisions of this Decree-Law shall prevail to that extent.

3. Accepted Accounting and Reporting Standards The Corporate Tax Law provides that the Taxable Income of each Taxable Person shall be determined separately, on the basis of properly prepared, standalone (unconsolidated) Financial Statements for financial reporting purposes in accordance with the Accounting Standards accepted in the UAE for Corporate Tax purposes.1 Ministerial Decision No. 114 of 2023 specifies that the only Accounting Standards accepted in the UAE for Corporate Tax purposes are the International Financial Reporting Standards (“IFRS”) and the International Financial Reporting Standard for small and medium-sized entities (“IFRS for SMEs”). 3.1. IFRS Taxable Persons shall use IFRS as the Accounting Standards accepted in the UAE for Corporate Tax purposes.2 3.2. IFRS for SMEs For Corporate Tax purposes, Taxable Persons may use IFRS for SMEs if they derive Revenue not exceeding AED 50 million in a Tax Period.3 IFRS for SMEs should not be used as the default Accounting Standard. The Taxable Person may use IFRS for SMEs only if they satisfy the Revenue requirement. Where the requirement is not satisfied, IFRS shall be used. 3.3. Accounts not prepared under IFRS or IFRS for SMEs As mentioned above, Taxable Persons are required under the Corporate Tax Law to use IFRS or IFRS for SMEs (as applicable) to calculate Taxable Income. Failure to do so will be viewed as a violation of the Corporate Tax Law and may result in administrative penalties. 4 Nonetheless, for purposes other than Corporate Tax, Taxable Persons may use different accounting standards as long as all relevant calculations and reporting are performed and provided (where required) using IFRS or IFRS for SMEs for Corporate Tax purposes. 1 Article 20(1) of the Corporate Tax Law. 2 Article 4(1) of Ministerial Decision No. 114 of 2023. 3 Article 4(2) of Ministerial Decision No. 114 of 2023. 4 Article 24(1)(a) of Tax Procedures Law. Corporate Tax Guide | Accounting Standards | CTGACS1 12

based on IFRS. Where the Revenue of the Taxable Person does not exceed AED 50 million, they may choose to apply IFRS for SMEs instead.67 Tax Groups are required to prepare consolidated Financial Statements using the above Accounting Standards for the purpose of determining the Taxable Income of a Tax Group.68 For this purpose, the standalone Financial Statements of the Parent Company and each Subsidiary that is a member of the Tax Group must be consolidated by way of aggregation, generally eliminating any transactions between the members of the Tax Group. 69 If the consolidated Revenue of the Tax Group exceeds AED 50 million during the relevant Tax Period, such Financial Statements of the Tax Group are required to be audited.70 However, the Corporate Tax Law does not require the separate Financial Statements of the Parent Company and Subsidiary members to be audited, even when a member’s Revenue exceeds AED 50 million. All members of the Tax Group must use the same Accounting Standards for the relevant Tax Period in which the Tax Group is formed. This condition would not be met if one juridical Resident Person uses IFRS and another juridical Resident Person uses IFRS for SMEs. If one juridical Resident Person preparing its Financial Statements based on IFRS for SMEs wants to join a Tax Group whose members are preparing Financial Statement based on IFRS, that juridical person would need to prepare its Financial Statement based on IFRS in order to be able to join the Tax Group. The Accounting Standards condition does not explicitly require all the members to follow the same accounting policy in the standalone Financial Statements. However, for the purposes of preparing the Financial Statements of the Tax Group, a single accounting policy consistent with the applicable Accounting Standard will need to be applied by all members of the Tax Group. Although a Tax Group may have consolidated Financial Statements that are already available for financial reporting purposes, the consolidated Financial Statements used for the purposes of determining the Taxable Income of the Tax Group for Corporate Tax purposes should cover, and be accompanied by, a statement that aggregates the standalone Financial Statements of all entities included in the Tax Group and no other entities. 67 Article 4(1) and 4(2) of Ministerial Decision No. 114 of 2023. 68 Article 42(1) and 42(11) of the Corporate Tax Law. 69 Article 42(1) of the Corporate Tax Law and Article 3 of Ministerial Decision No. 114 of 2023. 70 Article 54(2) of the Corporate Tax Law read with Article 2(1) of Ministerial Decision No. 82 of 2023. Corporate Tax Guide | Tax Groups | CTGTGR1 42