Aggregated Financial Statements for Tax Groups

The business landscape of United Arab Emirates is increasing dramatically as the country’s economy continues to expand. Multiple businesses have been put up in the past few years both in free zones and in the mainland. And since UAE implemented its corporate tax in 2023 through the Federal Decree-Law No. 47, many calendar-year businesses felt the weight of tax works in 2024. Hence, companies with common ownership clubbed their businesses under a holding company. And for ease of tax management, these companies with separate trade licenses started registering as a tax group.

Prior to filing of corporate taxes for 2025, businesses just knew that tax groups’ financial statements will be consolidated for tax purposes. The term ‘consolidation’ puts confusion on how the tax group’s financial statements will be presented. With most of them applying the IFRS-based consolidation process under IFRS 3, FTA has another view on it.

Client Background

The client is a holding company with a subsidiary that is involved in interior designing consultancy and implementation works.  In its 2024 corporate tax filing, the company filed its first group Corporate Tax Return with the same confusion on how line-by-line items are to be presented in its financial statements. Fortunately, during that time, unaudited FS were still allowed as attachment when filing the tax return.

Challenges Faced in 2025 Group Corporate Tax Filing

The client mainly faced the following challenges:

1. Its 2024 financial statements were prepared without fully incorporating specific requirements from FTA about aggregated financial statements.
2. The same 2024 aggregated financial statements were submitted without undergoing audit and hence were not checked by professionals in the field.
3. Only the subsidiary’s financial statements were audited, as it is the one that carries the operations of the group, but it was prepared under IFRS.
4. The holding company’s separate books of accounts were not audited, and was later found out by Vertix Auditing, a licensed audit firm in UAE, that it lacked important updates required by the tax authorities.
5. Without proper accounting of the parent itself, the group neither had proper knowledge on its consolidated accounts nor aggregated amounts.

In August 2025, Federal Tax Authority (FTA) of the UAE released a public clarification CTP 007 explaining how financial statements should be presented in the cases of tax groups. In this pronouncement, FTA made it clear that aggregated FS is not synonymous with consolidated FS under IFRS 3.

What is Consolidated Financial Statements?

Consolidated Financial Statements are prepared using the International Financial Reporting Standards. Under these standards, accounts of parents and subsidiaries are combined with corresponding consideration of the following:

• Elimination of the “investment in subsidiary” account
• Elimination of the subsidiary’s equity equivalent to its amount at the time of acquisition
• Recognition of goodwill (if consideration is greater than net assets acquired) or gain on bargain purchase (if consideration is less than net assets acquired)
• Recognition of fair value adjustments
• Elimination of intercompany balances

Consolidated financial statements are used by the central decision-making body of the group and may be used by any user of the company’s financial information.

What is Aggregated Financial Statements?

Per the FTA CTP 007, aggregated financial statements follows a different aggregation basis. Specifically, it is different from the IFRS 3-based consolidation in most points such as:

• There is no elimination of investment in subsidiary account and equity of subsidiary
• No goodwill or gain on bargain purchase will be recognized
• No fair value adjustments are to be recorded
• And no matter how absurd this may sound, equity accounts of both parent and subsidiary are simply added together.
• Financial statements should be presented on the “pre-tax” basis on all parts and aspects of the financial statements

FTA explicitly stated that this set of financial statements is prepared solely for UAE corporate tax purposes and an emphasis of matter shall be placed on this fact to not mislead users of this information.

Vertix Solution to this Problem

Vertix Auditing planned the audit of both the parent and the subsidiary’s financial statements.

• We thoroughly reviewed the books of both entities. This included checking the 2024 opening balances of each account in each book.
• We proposed adjusting entries to update the books of the parent company and made sure that no economic event was left unrecorded especially the investments of the owners.
• Once separate books are fixed, the standalone financial statements were prepared using IFRS as the basis.
• Consolidated financial statements were also prepared on the basis of IFRS 3 to give the owner the correct figures to permit proper economic decisions moving forward.
• CTP 007 was carefully reviewed by our tax experts and we guided the group in the preparation of the aggregated financial statements. We made sure that all necessary disclosures were included in the accompanying notes.

Results and Client Feedback

By the end of the tedious correction of books, preparation of standalone financial statements, consolidation of group’s statements and aggregation of accounts for FTA purposes, the management of the group is very pleased to be able to file their group corporate tax returns, resting assured that it is fully compliant with FTA regulations. The management is also satisfied that all necessary statements were prepared for the different users of the financial information and confusion is no longer part of the equation.

Prepared and Reviewed By: Vertix Auditing Team – UAE tax and audit professionals with practical experience in client engagements. The case study is based on experience gained through actual audit and tax assignments.