IAS 12 – Income tax

IAS 12 prescribe the accounting treatment of income taxes it provides the rules on how to account for the current and future tax consequences of asset liabilities and transaction. In the financial statement current tax for current and prior period is recognized as liability of course of the extent that it is unpaid. Overpayment of current tax is recognized as an asset.

In addition of this IAS 12 also require an entity to recognize deferred tax lability or subject to several conditions a deferred tax asset for the temporary difference between tax base of asset or liability and its carrying amount, with this future tax impact are also taken into account.

According to the IAS 12 all the taxes that are calculated from the net profit or loss of the entity as their starting point are consider as income taxes, and all the domestic and foreign taxes based on the taxable profit are also consider as income tax.

Corporate tax

Corporate tax is the direct tax imposed by the UAE government according to Federal Decree Law No. 47 of 2022. On the net income or profit generated by a company over a specific period of time, usually fiscal year.

Taxable Profit

Taxable profit refers to the portion of a company's profit or income that is subject to taxation by the government. It is the income that is used as the basis for calculating the amount of taxes a company owes to the tax authorities. To arrive at taxable profit, a company starts with its accounting profit, Then, adjustments are made to this figure to align it with the tax regulations and laws of the relevant jurisdiction.

Accounting profit

The accounting net profit or loss for the relevant tax period as per the financial statement prepared in accordance with the provisions of Article 20 of Federal Decree Law No. 47 of 2022.

Adjustments

According to the article 20 of Federal Decree Law No. 47 of 2022 the taxable income for a tax period shall be the accounting profit for that period and with the adjustment as follows:

Any unrealized gain or loss (all asset or liability that are subjected to fair value or impairment accounting or all asset or liability held in capital account and taking into account any unrealized gain or loss in the connection in the revenue account at the end of the period).

All the exempt income specified under chapter 7 of Federal Decree Law No. 47 of 2022.

No Gain or loss that have arise from the transfer of asset or liability between two taxable person that are member of the same qualifying group.

No gain or loss should be taken in case of business restructuring relief.

Deductible expense.

Interest expenditure up to 30% of net interest expenditure.

No deduction shall be allowed for interest incurred on loan from related parties.

Subject to article 28 of this decree law, a taxable person shall be allowed to deduct 50% of any entertainment, amusement or recreation expenditure incurred during period.

Expenditure such as donation, grants, fines and penalty, bribe or other illicit payments, dividend, profit distribution, amount withdrawn by natural person, corporate tax imposed on a taxable person etc.

Transaction with related parties and connected persons.

Tax loss relief (should not exceed 75%)

Conclusion:

We hope this edition has provided you with a comprehensive overview of Corporate Income Tax in the UAE. Navigating tax regulations is a complex endeavor, and seeking professional guidance is paramount for ensuring compliance and making informed decisions.