Recent regulatory updates have clarified how tax groups must prepare their financial statements and the associated audit obligations, substantially impacting compliance processes for businesses operating in the UAE.
Tax Groups Under UAE Corporate Tax Law
A tax group refers to two or more taxable entities treated as one for corporate tax purposes, provided certain conditions from Article 40 of the UAE Corporate Tax Law are satisfied. Applications to form such groups must be approved by the Federal Tax Authority (FTA), after which the group is required to prepare aggregate financial statements to calculate their taxable income each fiscal year.
Preparation of Aggregate Financial Statements
Aggregate financial statements are specially prepared for tax, not general financial reporting. They involve:
- Combining standalone financial statements of group members.
- Eliminating intra-group transactions, including those between the parent and subsidiaries, or among subsidiaries within the group.
- Following a special purpose framework that, while largely based on International Financial Reporting Standards (IFRS), includes necessary deviations described by the FTA (e.g., certain consolidation and business combination rules).
- Preparing statements in AED, with all group members using the same financial year and uniform accounting policies.
Key points:
- The aggregated statements required include a statement of financial position, profit or loss, other comprehensive income, and changes in equity.
- Only transactions between tax group members are eliminated. Transactions with external parties remain in the statements.
- Some exceptions apply for transactions before formation of the tax group, particularly those resulting in deductible losses before joining.
Audit Requirements: What Has Changed?
Audit obligations depend on the period and the revenue threshold:
- For periods starting before January 2025, if a tax group’s consolidated revenue exceeds AED 50 million, audited aggregate financial statements are required.
- From January 2025, all tax groups must prepare and maintain audited, special purpose aggregate financial statements, regardless of revenue.
- Audits adhere to International Standards on Auditing (ISA), and the parent company files tax on behalf of the group—yet all members are jointly and severally liable for tax due.
- Audited statements must be submitted to the FTA at the time of tax return filing.
Disclosure and Reporting
Aggregate financial statements must disclose:
- The special purpose framework used
- Basis for aggregation (including details of group members, ownership percentages, and rights)
- Significant accounting policies, estimates, and judgments
- Supporting explanatory notes as per IAS 1
Illustrative auditor’s reports and detailed basis of preparation wordings have also been published to standardize submissions.
Implications for Group Members Entering and Leaving
If a subsidiary leaves the group, its standalone statements for corporate tax must:
- Reflect values used by the tax group
- Continue with the same accounting basis and policies as applied within the group, unless local standards prohibit this, in which case special adjustments for taxable income are required.
Conclusion
These regulations aim to ensure transparency, consistency, and fair application of corporate tax across group structures. Businesses should assess their existing group structures, accounting policies, and compliance processes to align with these clarified requirements—especially as the 2025 mandatory audit deadline approaches.
Sources :
- CTP007-Aggregate-Financial-Statements-and-Audit-Requirement-for-Tax-Groups-27-082025-final-for-publishing.
- Ministerial-Decision-No.-84-of-2025-on-Audited-Financial-Statements
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