With the UAE’s corporate tax now in place, companies are adjusting to a new financial reality, one which brings with it notable changes to accounting, financial planning, and compliance procedures.
Approved on June 1, 2023, the tax affects profits exceeding AED 375,000; for UAE companies, this implies more than only budgeting for tax payments. Reviewing financial reporting, changing cash flow plans, and ensuring you follow all new documentation and filing criteria are also essential.
This article breaks down what you need to know covering key adjustments, compliance obligations, and strategies for staying on top of tax responsibilities.
Taxable profit vs. accounting profit
Accounting profit and taxable profit aren’t the same. While financial statements follow IFRS principles, tax laws have their own rules on what’s deductible and what’s not. Some expenses recognised in financial reports may not qualify for tax deductions. You need to consider this when calculating taxable income.
This means clearly separating taxable and non-taxable income in your records to avoid any errors which may lead to penalties down the line.
Stricter reporting and documentation requirements
Good bookkeeping is vital. Businesses have to keep records that include financial statements, transaction logs, and supporting paperwork for tax returns.
Transfer pricing rules also apply. If your business engages in transactions with linked firms, you must record them at market value to guarantee compliance.
Effect on budgeting and cash flow
Now that tax payments are a set expense, companies have to budget differently. This means making sure you always have enough liquidity to meet any outgoings without interfering with business operations.
For some companies, this could mean changing cost structures or pricing policies to keep profitability; for others, just saving reserves may be sufficient.
Risk control and compliance
Missing deadlines or filing incorrect tax returns can result in penalties. Businesses must register with the Federal Tax Authority (FTA), submit tax returns on time, and retain records for the required period.
If your company can afford it, investing in accounting software or hiring tax specialists can be really beneficial. It takes the stress away from managing your obligations in-house and can help to avoid unnecessary financial or legal setbacks.
Effect on accounting standards and financial reporting
Income statements and tax liabilities
Corporate tax changes how companies disclose earnings. In the past, profits were calculated with an eye on operational performance, but today you must distinguish clearly between accounting and taxable profit. Under IFRS some expenses—such as interest payments or entertainment costs—may be deductible but disallowed for tax purposes.
This means making any necessary adjustments before determining taxable income.
The tax expense also becomes a new line item in financial statements, directly affecting reported net income. This additional burden means that profit projections will have to be adjusted too.
Deferred tax and financial planning
Deferred tax is another consideration. Businesses that recognise income and expenses differently for accounting and tax purposes must track timing differences. These can impact future tax liabilities, requiring adjustments in financial reporting.
For companies operating on long-term contracts or recognising revenue over multiple years, deferred tax calculations ensure that financial reports accurately reflect the timing of tax payments. Without this, businesses risk underreporting or overestimating future tax obligations.
Compliance requirements and disclosure policies
With the CT regime’s new disclosure obligations, obviously it’s vital to maintain transparency. To do this businesses will need to start documenting more so that they’re able to report all tax-related information in their financial statements; This includes:
- Tax reconciliation statements showing the difference between accounting and taxable income.
- Details on deferred tax assets and liabilities.
- Breakdown of any tax credits, deductions, or exemptions applied.
The role of accounting teams and technology
With tax now a fundamental part of financial reporting, investing in the right expertise and technology is non-negotiable. A lot of companies are upgrading their accounting software to include tax calculation features. Alternatively, hiring a tax specialist to manage your obligations is another way to take the load off your shoulders.
Avoiding any missteps here is really important as it also affects investor confidence, bank lending decisions, and business valuations.
How corporate tax affects business operations in the UAE
Cash flow and budgeting
Tax obligations impact cash flow. Businesses must now allocate funds for tax payments, which means tighter budgeting and financial planning. If you’re relying on reinvesting profits, you’ll need to reconsider how much capital you keep on hand.
Pricing and profit margins
It’s also important to weigh up whether it’s better to absorb the cost or adjust pricing. Neither is inherently better. A lot will depend on individual circumstances. For example, companies operating on thin margins—like in retail or hospitality may find that even a small tax hit affects profitability. Some may opt to increase prices, while others might look for cost-saving measures to remain competitive.
Contracts and supplier agreements
Tax also affects supplier and client relationships. Contracts that previously didn’t account for corporate tax may need revisions, particularly if agreements involve revenue-sharing models, commission structures, or service fees. If you’re dealing with long-term projects, you need to ensure that future tax liabilities are considered in your pricing and payment schedules.
Compliance and administrative work
The amount of extra paperwork and man hours involved in compliance is obviously another big concern, particularly for SMEs that may not have the resources to be able to deal with tracking everything internally.
If this is you, the simplest way to manage this is to consider hiring a tax consultant on an ad-hoc basis or upgrading your accounting systems to avoid any fines or other penalties.
Business structure and tax planning
For some companies, it might be wise to consider the merits of restructuring for added efficiency. Whilefree zone companies that qualify for exemptions will want to ensure they meet the requirements to retain their benefits. Others may explore holding companies or group structures to manage their obligations more effectively.
Changes to tax filing and documentation
More detailed record-keeping
Businesses must now track income, expenses, and tax-deductible costs more carefully. Proper documentation is essential, as the FTA could request financial records at any time. That means maintaining accurate invoices, receipts, and financial statements to support tax filings.
Regular filing requirements
Companies earning taxable profits above AED 375,000 must file corporate tax returns annually. Missing deadlines can result in penalties, so businesses must stay on top of their reporting schedules.
Audit and compliance checks
With tax laws in place, businesses face a higher risk of audits. The FTA has the authority to review financial records, verify tax payments, and impose penalties for non-compliance, so it’s essential that your financial statements align with tax laws and that you maintain records for at least seven years.
Digital tax filing
Fortunately, the CT system is largely digital, meaning that businesses can opt to file returns online through the FTA portal. It does, however, mean familiarising yourself with electronic filing procedures and ensuring any software you currently use is compatible with the system.
About Creative Zone
Adjusting to corporate tax can be challenging, but you don’t have to do it alone.
At Creative Zone, we help companies navigate the new tax system, ensuring compliance while optimising financial strategies. Whether you need assistance with registration, filing, or ongoing support, our team of experts is ready to guide you through the process.
Get in touch today to learn how we can help your business adapt and stay compliant with confidence.
