UAE Corporate Tax: what changes at the AED 375,000 threshold
How the 0% and 9% bands work and what to prepare before your first return.
When it applies
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. It applies retrospectively. A company with a December year-end will first present its 31 December 2027 financial statements under IFRS 18, with 2026 comparatives restated in the new format. Interim reports in 2027 are affected too.
IFRS 18 is part of full IFRS. Companies reporting under IFRS for SMEs are not affected by it.
New categories in the income statement
Every item of income and expense will be classified into one of five categories. Three are new and matter most:
| Category | Typical items |
|---|---|
| Operating | Revenue, cost of sales, staff costs, rent, depreciation; the default category for anything not classified elsewhere |
| Investing | Returns from investments held separately from main operations, such as income from associates, rental income from investment property or interest on surplus cash for most companies |
| Financing | Interest on borrowings and lease liabilities, unwinding of discounts on provisions |
| Income taxes | Corporate Tax expense |
| Discontinued operations | Results of operations sold or held for sale |
Two new subtotals become mandatory: operating profit and profit before financing and income taxes. For the first time, "operating profit" will mean the same thing in every IFRS report. Banks, holding companies and other entities whose main business is investing or financing follow special rules.
Management-defined performance measures
Many companies report their own measures, such as "adjusted EBITDA" or "underlying profit", in board packs, investor presentations and bank covenants. Under IFRS 18, measures like these that are used in public communications must be disclosed in a single note in the financial statements, with:
- a description of what the measure shows and why it is useful,
- a reconciliation to the most directly comparable IFRS subtotal, and
- the tax and non-controlling interest effect of each reconciling item.
These disclosures are covered by the audit. If your bank covenant uses an "adjusted EBITDA", now is a good time to agree its exact definition.
Grouping and expense disclosures
IFRS 18 adds principles on aggregating and disaggregating information, so large "other" lines will need explaining. Companies that present expenses by function, such as cost of sales and administrative expenses, must also disclose certain expenses by nature in the notes: depreciation, amortisation, employee benefits, impairment losses and inventory write-downs.
Changes to the cash flow statement
The indirect method will start from operating profit, not profit before tax. Choices on where to classify interest and dividends are removed for most companies: interest and dividends received move to investing activities, and interest paid moves to financing.
IFRS 18 changes presentation, not measurement. Net profit, and therefore the starting point for UAE Corporate Tax, stays the same.
How to prepare in 2026
- Map your chart of accounts to the operating, investing and financing categories, and note the judgement calls.
- Capture 2026 data in a way that supports the restated comparatives, so you are not reconstructing it in 2028.
- List every adjusted measure you use with banks, investors or in public reporting, and agree definitions.
- Check covenants and bonus schemes that refer to operating profit or EBITDA; the numbers may move.
- Talk to your auditors early about classification judgements and the new notes.
- Update your reporting templates, ERP mappings and board pack so management sees the new view during 2027.
This article is a summary of IFRS 18 as issued by the IASB. It is not advice for your company. Hassan helps UAE companies map their accounts and prepare IFRS 18 comparatives.
Official source: IFRS Foundation
