Ensuring Compliance: Key considerations for filing your first UAE corporate tax return

Preparing for the first CT return requires an understanding of key regulatory aspects, accounting standards, and tax implications

With the introduction of Corporate Tax (CT) in the UAE, businesses must navigate compliance complexities while ensuring accurate financial reporting. Preparing for the first CT return requires an understanding of key regulatory aspects, accounting standards, and tax implications.

1.   Compliance with IFRS and IFRS for SMEs

Businesses must prepare financial statements in line with International Financial Reporting Standards (IFRS) or IFRS for SMEs per Ministerial Decision No. 114 of 2023. Companies exceeding AED 50 million in revenue must use IFRS, while smaller entities can opt for IFRS for SMEs.

Incorrect IFRS application may result in misstatements in taxable income. Companies without in-house IFRS expertise should seek professional support to ensure compliance.

2. Mandatory audited financial statements

As per Ministerial Decision No. 82 of 2023, businesses 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, per Federal Law No. 41 of 2023. Failure to comply can lead to penalties 

3. Unrealised gains and losses

Unrealised gains and losses occur when asset and liability values fluctuate without an actual transaction. Examples include:

- Foreign currency fluctuations affecting liabilities

- Asset revaluations impacting balance sheets

For tax purposes, realised and unrealised gains and losses are included in taxable income unless the realisation basis is elected. Specifically, it requires a very good understanding of fair value adjustments through P&L and OCI and their tax implications while preparing CT returns.

4. Realisation basis for gains and losses

Companies using the accrual basis of accounting can elect to apply the realisation basis, meaning only realised gains and losses (from actual transactions) count toward taxable income.

This election must be made in the first tax period and is irrevocable, except under exceptional circumstances approved by the FTA.

5. Deductibility of business expenditure

To qualify for Corporate Tax deductions, expenses must be wholly and exclusively for business purposes and not capital in nature. Certain expenses, such as entertainment and interest, have additional deduction rules.

Proper documentation is necessary to substantiate deductions and avoid compliance risks.

6. Ensuring a smooth tax return filing process

To comply with 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 affect taxable income

- Assess the benefits of electing the realisation basis

- Seek professional tax consultancy services for accuracy and compliance

Expert guidance for hassle-free corporate tax filing

IFRS applications and tax compliance are complex. Errors in financial reporting or tax interpretation can lead to significant penalties.

At KGRN Chartered Accountants, we specialise in corporate tax consultation and compliance services to help businesses meet regulatory requirements. Our experts provide tailored solutions, from financial statement preparation to tax return filings.

For expert guidance on UAE Corporate Tax compliance, visit www.kgrnaudit.com/ and book a consultation today.