Financial Reporting in the UAE

Deep Dive: Decoding FTA Decision No. 7 of 2025 – The New Era of Tax Group Financial Reporting in the UAE

The UAE Corporate Tax framework is built on a foundation of clear, yet evolving, regulations. For businesses operating as a Tax Group, the Federal Tax Authority (FTA) has recently introduced a pivotal change with the issuance of Decision No. 7 of 2025. This decision, which came into effect on July 16, 2025, and applies to all tax periods beginning on or after January 1, 2025, provides the long-awaited specifics on how Tax Groups must prepare and maintain their financial statements for tax purposes.

This isn't just a minor update; it's a fundamental shift in reporting requirements. As your trusted partner, Essence is here to provide a detailed analysis of this decision and help you navigate the path to full compliance.

Understanding the Mandate: Why Audited Aggregated Financial Statements?

The decision clarifies and expands upon the requirement laid out in Ministerial Decision No. 84 of 2025, which first mandated that Tax Groups must prepare audited special-purpose financial statements. The new FTA decision defines exactly what these statements are: "Aggregated Financial Statements."

The rationale is to create a single, clear financial picture of the Tax Group for the purpose of calculating Corporate Tax. Unlike a traditional consolidation for financial reporting (e.g., under IFRS), the Aggregated Financial Statements are a specific construct designed solely for tax compliance.

The Core Framework: Aggregation vs. Consolidation

This is the most critical distinction to understand. While both processes bring together the financials of a group, they serve different purposes and follow different rules.

• Traditional IFRS Consolidation: Aims to present the group's financial position as if it were a single economic entity. This involves eliminating all intra-group balances, transactions, and unrealised profits/losses. It also includes specific accounting for business combinations (goodwill, fair value adjustments) under standards like IFRS 3 and IFRS 10.

• FTA Aggregation: The new framework is much more targeted. It requires a line-by-line aggregation of the standalone financial statements of each Tax Group member. The key is what gets eliminated—and what doesn't.

Detailed Breakdown of the Framework (Article 3)

Article 3 of the decision is the heart of the matter, laying out the specific rules for preparing these statements. Here's a deeper look into the practical implications:

1. Elimination of Intra-Group Transactions: As expected, all income, expenses, and unrealized gains and losses from transactions between members of the Tax Group must be eliminated. This ensures the Tax Group's taxable income reflects only its dealings with external parties.

2. Exclusions for Business Combinations: This is a key departure from IFRS. The decision explicitly states that adjustments related to goodwill, gains on bargain purchases, or fair value adjustments to assets and liabilities that are recorded in IFRS-compliant consolidated financial statements shall not be included in the Aggregated Financial Statements. This is to prevent a tax-related consequence from an accounting treatment that consolidates separate legal entities.

   • The Exception: An important exception exists. If a business combination is executed without acquiring a separate legal entity (e.g., an asset acquisition), the resulting goodwill or assets are part of the acquiring entity's standalone financials. In this case, these items must be fully aggregated into the Tax Group's statements.

3. Investments and Impairment: Another crucial point of divergence from IFRS consolidation is the treatment of investments. The decision requires a line-by-line aggregation without eliminating the following:

   • Investments recorded by the parent company in a subsidiary within the group.

   • The corresponding equity recorded by the subsidiaries.

   • Any impairment losses that a parent or subsidiary has recorded over its investment in ano