Corporate Tax · Analysis
The first full corporate tax year: seven adjustments auditors are now asking for
- Seven reconciliation items account for most auditor queries in a first full corporate tax year.
- Owner remuneration and related-party charges cause more questions than the other five combined.
- Evidence has to be created during the year. A board minute written at the close is not evidence.
- A clean audit opinion says nothing about whether your tax adjustments were correct.
Most UAE groups have now closed at least one complete corporate tax period. The returns are being prepared against audited financials for the first time, and a pattern has emerged: the same seven reconciliation items between accounting profit and taxable income account for the overwhelming majority of the questions auditors raise.
None of them are exotic. What makes them difficult is that the supporting evidence has to have been created during the year, not reconstructed afterwards.
Why the gap exists
Your financial statements are prepared under IFRS, which measures performance for investors and lenders. Taxable income is a statutory calculation that starts from that figure and then adds back and deducts items according to the Corporate Tax Law. The two were never meant to match.
A clean audit opinion is not a tax position. It confirms the numbers are fairly stated; it says nothing about whether the adjustments were correct.
The seven adjustments
In rough order of how often we see them queried:
| Item | Treatment | Risk if undocumented |
|---|---|---|
| Owner remuneration | Deductible at arm's length only | High |
| Related-party charges | Transfer pricing rules apply | High |
| Entertainment expenditure | Partially disallowed | Medium |
| Interest on shareholder loans | Subject to limitation rules | High |
| Provisions and accruals | Added back unless crystallised | Medium |
| Unrealised gains and losses | Depends on the realisation election | Medium |
| Fines and penalties | Not deductible | Low |
The two that cause the most trouble
Owner remuneration and related-party charges account for more queries than the other five combined. Both turn on the same question: would an unconnected party have agreed the same terms, and both are almost impossible to evidence convincingly after the fact.
If a shareholder draws a management fee, there should be a written agreement dated before the period, a description of the services, and some benchmark for the amount. A board minute written in month eleven to explain payments made in month two is not evidence of an arm's length arrangement.
What evidence to keep
For each adjustment on the return, three things should exist and should be findable in under a minute:
- The underlying document: the contract, invoice, board resolution or policy that created the item.
- The calculation: how the number in the return was derived from the number in the accounts.
- The reasoning: a short written note on why the treatment was chosen, and what alternative was rejected.
The third one is the one almost nobody keeps, and it is the one that matters most when a question arrives two years later and the person who made the decision has moved on.
What to do before year end
If your financial year ends on 31 December, the useful window is now, not in the nine months afterwards. Three things are worth doing while the year is still open:
- Run the seven items above against your current trial balance and see which ones you actually have.
- For any related-party flow, get the agreement papered and dated now rather than in the close.
- Ask your auditor which of these they intend to test, so nothing is a surprise in month ten.
None of this requires a large budget. It requires the work to happen in the right order, which, as with almost everything in this area, comes back to the calendar.
This article is general information, not tax advice for your business. Positions depend on your licence, structure and financial year. Current at August 2026.
Closing your first full year?
A partner will walk your trial balance against these seven items in a 30-minute call, at no charge.
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