Corporate Tax Accounting Standards and Methods as Per the Corporate Tax Law

The UAE Ministry of Finance released a judicial determination for the accounting method that is to be followed and the Generally Accepted Accounting Principles (GAAP) that are to be followed for the purpose of corporate tax UAE as per No. 114 of 2023. Thus, this article explains accounting standards that businesses are required to follow in compliance with the statutory legislation. Corporate Tax Consultants in UAE are committed to assisting Taxable Persons to implement these accounting standards and methods, therefore it is advisable to seek their expert services.  

Financial Statements and the cash basis of accounting methods. 

1. Definitions: The ministerial decision No. 114 of 2023 defines the financial statements and the cash basis of accounting methods.

  • Financial statements: The financial statements are an entire set of statements as required by the Accounting Standards applied by the Taxable Person, including but not limited to a balance sheet, a statement of changes in equity, a cash flow statement, a statement of income, a statement of other comprehensive income, and a statement of income.
  • Cash basis of accounting: This is a form of accounting whereby the Taxable Person recognizes income and expenses upon receipt and disbursement of cash payments. 

2. Preparation of financial statements using the cash basis of accounting. The following circumstances are listed in Article 2 as ones in which a person may choose to prepare financial statements using the cash basis of accounting:

  • Where the individual's annual income does not exceed 3,000,000 AED (3,000,000 United Arab Emirates dirhams)
  • In extreme cases and in response to an application the person submitted to the authority.

3. Article 3 of Ministerial Decision No. 114 states that the process of creating standalone financial statements involves combining the standalone financial statements of the parent company and each subsidiary that belongs to the tax group while omitting their intercompany activities.

4. A Taxable Person must follow the International Financial Reporting Standards, according to Article 4.

International Financial Reporting Standards for SMEs (IFRS for SMEs) may, nevertheless, be used for financial reporting by Taxable Persons with Revenues Under AED 50 million. 

5. Lastly, as per Article 5, The Decision will be made public and will take effect the day after it is made public.

If there needs to be any clarification with respect to the above points or if there are any doubts, then businesses are advised to seek the help of tax consultants in the UAE.

Why is it vital for businesses to follow accounting practices and laws and why has it been implemented by the MoF?

The businesses must keep accounting practices and records as per the CT law. Some of the advantages are as explained below: -

  1. Firstly, compliance with accounting regulations supports the integrity of financial reporting. Companies can give trustworthy and consistent financial information to stakeholders, including investors, creditors, and regulators, by adhering to standardized accounting procedures. By increasing trust and confidence in the company's financial accounts, this transparency makes it simpler to attract investors and obtain financing.
  2. Secondly, following accounting rules encourages impartial competition. It is simpler to evaluate the financial performance of different organizations when they all adhere to the same standards and guidelines. This enables stakeholders and investors to make defensible decisions based on reliable financial data. Companies could alter their financial accounts without conventional accounting procedures, giving them unfair benefits and undermining confidence in the financial markets.
  3. Thirdly, using the right accounting procedures is crucial for being in compliance with all laws and regulations. Companies have a number of reporting responsibilities, including filing tax returns, providing financial statements to regulatory authorities, and adhering to rules particular to their industry. Accounting regulations must be adhered to in order to avoid penalties, fines, legal issues, and reputational harm to the business.
  4. Furthermore, reliable financial reporting is essential for corporate internal decision-making. Management can assess the company's financial health, make wise strategic decisions, and allocate resources efficiently with the use of reliable accounting information. Additionally, it aids in the detection of fraud or financial anomalies as well as prospective areas for improvement.

In conclusion, following legal accounting procedures and standards is essential for businesses to ensure transparency, encourage fair competition, adhere to rules, and make informed judgments. It improves responsibility, credibility, and trust, which is advantageous to the organization and its stakeholders. 

How Tax Consultants in UAE can assist 

It is important to note that specific circumstances and industry-specific regulations may impact the application of these accounting standards and methods. It is advisable for Taxable Persons to consult Tax Consultants UAE today to effectively understand how and what corporate tax Accounting Standards and Methods are to be followed as per the corporate tax laws in the UAE. We are well versed in and fully updated with the rules and decisions issued by the FTA. Therefore, contact us today and we shall be glad to assist you.

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