[World Tax News] UAE Clarifies Financial Statement And Audit Rules For Tax Groups

Editorial Team – [2025] 178 taxmann.com 102 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. UAE Federal Tax Authority issues clarification on financial statement and audit requirements for Tax Group

The Federal Tax Authority (FTA) issued Public Clarification CTP007 to explain the preparation and audit requirements of Aggregated Financial Statements (AFS) for Tax Groups under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022). A Tax Group is formed when two or more taxable persons, meeting Article 40 conditions, are treated as a single taxable person upon FTA approval. From 1 June 2023 onwards, such groups must prepare AFS to compute their taxable income.

AFS are compiled by combining the standalone financial statements of all group members and eliminating intra-group transactions. These differ from consolidated IFRS financials, as they follow a special purpose framework tailored for tax computation. Key principles include: (i) presentation in AED, (ii) same financial year and consistent accounting policies for all members, (iii) use of pre-tax profits/losses (excluding corporate tax balances), and (iv) recognition of inter-company eliminations, except in cases involving pre-group deductible losses. The primary AFS consist of aggregated balance sheet, income statement, other comprehensive income, and changes in equity.

Audit requirements depend on thresholds: under Ministerial Decision 82/2023, groups exceeding AED 50 million revenue must maintain audited financials for periods before 1 Jan 2025. From 1 Jan 2025, per Ministerial Decision 84/2025, all Tax Groups must prepare audited special-purpose AFS, regardless of revenue. The audit must be in line with International Standards on Auditing (ISA). Audited AFS are to be submitted with the tax return.

Special rules apply when a member exits the group: its standalone financials must adopt the same accounting policies and opening balances as the group. Adjustments also apply for asset transfers, impairments, and depreciation eliminations to ensure tax neutrality.

In essence, this clarification provides a framework ensuring uniform preparation, disclosure, and audit of AFS, enabling accurate determination of taxable income for Tax Groups while aligning with, but not fully following, IFRS.

Source – FTA Clarification CTP007

2. Turkey issues guide on taxation of sports sponsorships

The Turkish Revenue Administration has released a Guide to the Taxation of Sponsorship Expenditures, addressing sponsorships of athletes, clubs, and related activities. The guide specifies that deductible sponsorship expenses include:

(a) Rental of sports facilities;
(b) Travel, accommodation, and food for athletes;
(c) Sports equipment costs;
(d) In-kind and cash support for sports facilities;
(e) In-kind and cash performance bonuses to athletes based on competition results.

Such expenditures are fully deductible (100%) for amateur sports and 50% deductible for professional sports, for both corporate and individual income tax purposes.

The guide distinguishes sponsorship from advertising:

(a) Advertising expenses (e.g., emblems, logos, or brand names on sports fields, equipment, or electronic boards) are aimed at commercial promotion and are fully deductible.
(b) Sponsorship expenses are primarily social in nature, providing in-kind or cash support with indirect or immeasurable commercial benefit, and are deductible as per the above limits.

On VAT treatment:

(a) Advertising is always subject to VAT.
(b) Sponsorships involving free supplies of goods or services to public institutions are VAT-exempt; otherwise, they are generally subject to VAT.
(c) Cash sponsorships are not subject to VAT, as they do not constitute a supply of goods or services.

Source – Guidance on Taxation of Sponsorship Expenditures Published

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