UAE Corporate Tax​: Requirements for Special Purpose Financial Statements for a Tax Group​

In Detail

Applicability​

The Decision applies to all tax groups, for tax periods beginning on or after 1 January 2025, formed under the UAE Corporate Tax Law. It mandates that tax groups must prepare and maintain audited aggregated financial statements for each tax period, in accordance with a special purpose framework.​

Definition of Aggregated Financial Statements

Aggregated Financial Statements are defined as, “Financial Statements prepared on the basis of the aggregation of the standalone Financial Statements of the Parent Company and eachSubsidiary that is a member of the Tax Group in accordance with the framework specified in Article 3 of this Decision.”​

As highlighted in the framework for preparation below, tax group special purpose financial statements will be prepared based on the aggregation of the standalone Financial Statements ofthe Parent Company and each Subsidiary that is a member of the Tax Group and eliminating thetransactions between the members.​

Framework for Preparation

For the purposes of preparing the aggregated financial statements, the standalone financial statements of Tax Group members must be aggregated, eliminating intra-Tax Grouptransactions. These aggregated financial statements must be prepared annually based on such standalone statements for the relevant financial year.​

​The aggregated financial statements must comply with International Financial ReportingStandards (IFRS) or IFRS for Small and Medium Enterprises (SMEs), subject to the following considerations:​

• The aggregation should not reflect the accounting implications of business combinationsunder IFRS 3 or consolidated financial statements under IFRS 10. ​​

• Adjustments relating to goodwill, gain on bargain purchase, or fair value adjustments recorded in consolidated financial statements should not be included in the aggregated financial statements. ​​

• As an exception, if a business combination occurs without the acquisition of a separatelegal entity, i.e. acquisition of assets, the resultant assets, liabilities, and goodwill, beingpart of the separate financial statements of the acquiror, are to be fully aggregated.​​

• Line-by-line aggregation is required, including investments and equity, without eliminations between these captions. ​​

• Impairments recorded by the parent or subsidiaries over investments in the Tax group,where the parent directly holds the subsidiary or the subsidiary directly holds another subsidiary, should not be eliminated.​​

Key Adjustments​

The following principles must be applied when preparing Aggregated Financial Statementsfor a Tax Group:​

• Elimination of Intra-Tax Group Transactions: Subject to certain exceptions, anyincome, expenses, unrealized gains and losses, and other transactions between members of the Tax Group shall be eliminated from the Aggregated Financial Statements.​

• Exclusion of Non-Tax Group Entities: The standalone financial statements of entitiesthat are not part of the Tax Group must not be aggregated as part of the Tax Group’s Aggregated Financial Statements likewise the transactions with such non-tax group entities must also not be eliminated.​

• Uniform Accounting Standards: The standalone financial statements of all members ofthe Tax Group must be prepared in accordance with International Financial Reporting Standards (IFRS) or IFRS for Small and Medium-sized Entities (SMEs).​

• Consistent Accounting Policies: All members of the Tax Group must apply consistent accounting policies when preparing their standalone financial statements.​

• Aggregation of Pre-Tax Profit or Loss: The accounting profit or loss to be aggregated must be the pre-tax profit or loss of each member of the Tax Group.​

• Measurement of Investments in Non-Tax Group Entities: Investments in subsidiaries, joint ventures, and associates that are not members of the Tax Group must be carried atcost less impairment. (This means that investments in subsidiaries, joint ventures and associates measured using equity accounting method or at fair value, must be remeasured at cost by reversing such impacts)​

• Presentation Currency: The Aggregated Financial Statements of the Tax Group must be presented in United Arab Emirates Dirham (AED).​

Presentation and disclosures​

In terms of presentation of the aggregated financial statements, a complete set of suchfinancial statements must include:​

• Aggregated statement of financial position​

• Aggregated statement of profit or loss​

• Aggregated statement of other comprehensive income​

• Aggregated statement of changes in equity​

​​It is important to note here that a statement of cashflow generally required under IAS-1 and IAS-7 is not listed alongside the other primary statements. This creates uncertainty on the need for inclusion of the statement, given it is not specifically mentioned as an exclusion in the above article.​​

Disclosures must cover the following:​​

• The framework and basis of aggregation​​

• Material accounting policies, estimates, and judgements​​

• Explanatory notes supporting the figures presented.​​

Special Provisions for Members Leaving the Tax Group​

If a member leaves the tax group or the group ceases to exist, it must adopt the asset and liability values as recorded in the aggregated financial statements as opening values in its standalone financial statements, unless accounting standards prohibit.​​

Where the accounting standards do not permit, the standalone financial statements can beprepared as per the applicable requirements of the accounting standards, however, the taxable income must be calculated as if such values were permitted.​

Given IFRS will typically not allow remeasurement based on the tax group carrying values, the member leaving the tax group may have to maintain a separate set of financial information for the purposes of computing taxable income.​