For UAE corporate tax, accounting profit is calculated under IFRS. A taxable person whose revenue does not exceed AED 50 million may apply IFRS for SMEs instead, under Ministerial Decision No. 114 of 2023. Above that limit, full IFRS applies. The choice affects disclosures, measurement and the workload of your accountants and auditors.
The tax starting point
UAE corporate tax starts from accounting profit prepared under an accepted standard. Ministerial Decision No. 114 of 2023 states that IFRS is the standard for determining taxable income, with IFRS for small and medium-sized entities available to a taxable person whose revenue does not exceed AED 50 million. Summaries differ on whether the limit reads less than or does not exceed, which matters only at exactly AED 50 million. Read the decision text if you are at the boundary.
How the two standards differ
| Area | Full IFRS | IFRS for SMEs |
|---|---|---|
| Size | Complex, many standards | A single, shorter standard |
| Disclosures | Extensive | Reduced |
| Some measurement options | More choices | Fewer choices, simpler rules |
| Who uses it | Large, listed or complex groups | Smaller private companies |
| Cost of preparing | Higher | Lower |
How to apply the revenue limit
Revenue is the total income from your activity in the period. Commentary on the decision notes that related-party revenue should be measured on an arm's length basis for this test. Use your audited or management accounts for the period and keep the calculation on file. If you are near the limit, forecast the next period, because crossing it means moving to full IFRS.
Switching from IFRS for SMEs to full IFRS
- Estimate revenue for the coming period and check the limit.
- List the accounting policies that differ, such as financial instruments and leases.
- Restate opening balances and comparatives.
- Update disclosures and the notes.
- Brief your auditor early.
Cash basis is a separate option
A taxable person with revenue not above AED 3 million may use the cash basis. That is different from choosing a standard and is explained in cash basis accounting for UAE corporate tax.
IFRS 18 is on the way
Full IFRS changes the layout of the income statement from 2027 under IFRS 18. See IFRS 18 for UAE companies and the IFRS 18 transition plan. Check whether the change affects entities using IFRS for SMEs.
Auditors and banks
Your auditor reports against the framework you adopt, and some lenders ask for full IFRS. Choose a standard you can maintain. See how to read a UAE audit report.
Examples
A trading company with revenue of AED 30 million qualifies to use IFRS for SMEs under the revenue test, but its lender requires full IFRS statements and its auditor recommends full IFRS because of the complexity of its foreign currency borrowings. The company chooses full IFRS for banking reasons, even though the tax rules would allow the simpler standard. The tax rule sets a limit on who may use the SME standard. It does not require everyone below the limit to use it.
Areas where results differ
The two frameworks can produce different profits. Differences arise in areas such as financial instruments, impairment of receivables, deferred tax, government grants, development costs, investment property and the treatment of some leases. Because corporate tax starts from accounting profit, a difference in profit can change taxable income. A company moving between standards should prepare a reconciliation of opening equity and profit. See VAT and corporate tax turnover mismatch.
Groups and subsidiaries
A subsidiary reporting to a parent that uses full IFRS often uses full IFRS too, so that consolidation needs no adjustments. A group that reports under IFRS may also file the subsidiary's tax computation on the same basis. Where subsidiaries use different standards, document the bridge so that tax and group reporting can be reconciled.
Planning a transition
- Compare the revenue forecast with the limit for two years ahead.
- Identify the policies that would change.
- Estimate the effect on profit and equity.
- Brief lenders and investors early.
- Align the audit scope and fee with the auditor.
Adopting IFRS for SMEs for the first time
A company moving to IFRS for SMEs from local practice should prepare an opening balance sheet at the date of transition, apply the standard consistently and give comparatives. Typical first-time adjustments include recognising leases, measuring receivables for credit losses, separating components of fixed assets and recording provisions. Budget time for the auditor to review the transition and for management to understand the new numbers before lenders see them.
Why it matters for tax
The tax computation begins with accounting profit under the chosen standard, so a policy choice is also a tax choice. For example, how you recognise revenue, value stock or account for impairments affects profit and so taxable income. Choose policies for sound accounting reasons and record the basis, because the FTA may ask why a policy was chosen. See corporate tax return errors.
Software and templates
Check that your accounting software can support your chosen framework, including lease accounting, multi-currency, and fixed asset schedules. Where it cannot, plan manual workings. For VAT, the FTA publishes a list of approved accounting software; see FTA-approved accounting software.
Disclosures that trip people up
- Related-party transactions and balances.
- Key management compensation.
- Going concern assessments.
- Post balance sheet events.
- Commitments and contingent liabilities, including guarantees.
These appear in both frameworks, in different detail. Collect the information during the year so the notes can be prepared without delay.
Effect on audit time and fees
IFRS for SMEs can shorten the notes and some audit areas, which may reduce time. Poor records raise cost under both frameworks. If you are choosing an auditor, tell them early which framework you plan to use. See audit cost in Dubai.
Frequently asked questions
IFRS, or IFRS for SMEs for a taxable person whose revenue does not exceed AED 50 million, under Ministerial Decision 114 of 2023.
You can use IFRS for SMEs while you qualify. When revenue grows beyond the limit, you move to full IFRS and restate comparatives.
No. Cash basis is a separate option for revenue up to AED 3 million. IFRS for SMEs is an accrual-based standard.
It can, because disclosures and judgement areas are fewer, but the audit scope depends on your business.
IFRS 18 is a full IFRS standard. Check how it applies to your chosen framework and your auditor's view.
In Ministerial Decision No. 114 of 2023 on the Ministry of Finance website.