UAE corporate tax: what your books must show
Corporate tax changed what bookkeeping is for in the UAE. Books that were kept to know how the business was doing are now the basis of a tax return, and the difference between those two purposes is mostly discipline: accruals, documentation, and being able to explain a related-party transaction.
- Accounting profit
- From financial statements on an accepted basis
- Adjustments
- Disallowed expenses, exempt income, reliefs
- Free zone income
- Qualifying and non-qualifying, distinguishable
- Related parties
- Transactions identifiable and supportable
What the books must do
Be on the accrual basis
Income and expenses recognised when they arise rather than when cash moves. Taxable income starts from accounting profit, so a cash-basis set of books cannot support the return.
Produce financial statements
A profit and loss and a balance sheet prepared on an accepted accounting basis, which is the starting point for the computation.
Separate qualifying free zone income
Where a free zone person seeks the qualifying rate, qualifying and non-qualifying income have to be distinguishable in the records rather than estimated later.
Identify related-party transactions
Transactions with connected persons and related parties need to be identifiable and supportable on arm’s-length terms.
Support every expense
Deductibility depends on the expense being incurred for business purposes and being documented. Undocumented expenses are the first thing disallowed.
Be retained
Records must be kept for the prescribed period and be capable of being produced.
How to be ready
- Move to accruals properly. Including prepayments, accruals, depreciation and provisions — not just the big ones.
- Tag related-party transactions. As they happen. Identifying them retrospectively across a year is painful and error-prone.
- Keep free zone income separable. By revenue stream, if you are a free zone person relying on the qualifying rate.
- Document expenses. A bill for every deduction, retained where it can be produced.
Corporate tax questions
Does tBiz compute my UAE corporate tax return?
No. It keeps the books the return is computed from — accrual basis, financial statements, cost centres and an audit trail — and does not produce the corporate tax return itself. We would rather be clear about that boundary than imply a filing capability we do not have.
Do free zone companies pay corporate tax?
A free zone person may benefit from a qualifying rate on qualifying income, subject to conditions, with non-qualifying income taxed normally. That makes keeping the two distinguishable in the records a practical requirement rather than an accounting nicety.
Can I keep my books on a cash basis?
Generally not for this purpose. Taxable income starts from accounting profit prepared on an accepted basis, which means accruals. Businesses that kept a cash-basis record for their own use have had to convert.
Is this page tax advice?
No. Corporate tax is new, the guidance continues to develop, and the free zone rules in particular are detailed. Take advice from a UAE tax professional.
Related
Keep books a return can start from
Accrual accounting, real financial statements and an audit trail on every posting.