Ministerial Decision No. (114) of 2023 provides clarity on applicable accounting standards and methods for corporate income tax
On 23 May 2023, the UAE Ministry of Finance released 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 (Decision).
Under the new corporate income tax (CIT) regime, taxable income will be determined based on standalone financial statements prepared in accordance with the accounting standards accepted in the UAE. The Decision clarifies that for CIT purposes, a taxable person must apply the International Financial Reporting Standards (IFRS). A Taxable Person deriving revenue that does not exceed AED50 million may apply IFRS for small and medium-sized entities (SMEs), which is a set of accounting standards designed specifically for SMEs.
The Decision further also states that a person may prepare financial statements on the basis of cash accounting (as opposed to accounting on an accrual basis), in any of the following instances:
- The person’s revenue does not exceed AED3 million;
- In exceptional circumstances and subject to the person submitting an application to the Federal Tax Authority.
With respect to tax groups, the Decision clarifies that consolidated financial statements must be prepared on the basis of the aggregation of the standalone financial statements of the parent company and each subsidiary that is a member of the tax group, thereby eliminating any intragroup transactions between the different members.
Key takeaway
Ministerial Decision No. (114) of 2023 provides further clarification and regulation on the accounting standards and methods to be used in the application of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. Entities should carefully review their revenue and accounting methods to determine which standard applies to them according to this decision.