Accounting Standards for Taxation Purposes

Accounting Standards for Taxation Purposes: A Closer Look at Ministerial Decision No. 114 of 2023

In an effort to streamline accounting practices and methods for taxation purposes, the UAE government has introduced Ministerial Decision No. 114 of 2023. This decision, which aligns with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, provides clarity on various aspects of financial reporting and standards.

The decision states:

Article (2) - Preparing Financial Statements Using the Cash Approach of Accounting

• Individuals or entities may choose to prepare financial statements using the Cash Basis of Accounting if their revenue does not exceed AED 3,000,000.
• In exceptional circumstances, and upon application to the Authority, a person may be allowed to prepare financial statements using the Cash Basis of Accounting.

Article (3) - Financial Statements

• It is clarified in the decision that consolidated financial statements should be prepared by aggregating the standalone financial statements of the Parent Company and the subsidiaries within the tax group.
• Transactions between the Parent Company and its subsidiaries within the Tax Group should be eliminated as required under the Corporate Tax Law.

Article (4) - Applicable Accounting Standards

• Taxable persons are required to apply the International Financial Reporting Standards (IFRS) as per Clause (1) of Article (20) of the Corporate Tax Law.
• However, entities with revenue not exceeding AED 50,000,000 have the option to apply the International Financial Reporting Standards for small and medium-sized entities (IFRS for SMEs) while remaining compliant.

Article (5) - Publication and Application of this Decision

• The decision was published on 9th May 2023 and came into effect one day after publication, i.e., 10th May 2023.

The introduction of Ministerial Decision No. 114 of 2023 provides businesses and individuals with more precise guidelines on accounting standards and methods for taxation purposes. Organizations can enhance transparency, accuracy, and consistency in their financial reporting processes by ensuring compliance with these standards. Therefore, businesses need to review the decision and adapt their accounting practices accordingly to meet the requirements set forth by the UAE government.

• Read More: Corporate Tax Federal-Decree-Law-No.-On 47-of-2022

• Read More: Impact of UAE corporate tax reform on businesses in free zones

• Read More: Corporate Tax in the UAE: Frequently Asked Questions

• Read More: Changing of Tax Period for the Purposes of Federal Decree law No. 47 of 2022 on Corporate and Business Taxation