Clarifications on Aggregated Financial Statements for Tax Groups

In August 2025, the Federal Tax Authority (‘FTA’) issued Federal Tax Authority Decision No. 7 of 2025, setting out the requirements for preparing and maintaining audited special purpose financial statements for Tax Groups under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, specifically requiring Aggregated Financial Statements (‘AFS’). The Decision is applicable for financial years commencing on or after 1 January 2025.

This was followed by a Public clarification (‘CTP007’) on the same topic which provides further clarifications on important aspects in relation to the preparation of AFS.

Tax Groups are required to prepare AFS solely for tax purposes, applying a special purpose framework that may differ from International Financial Reporting Standards (‘IFRS’) consolidated financial statements. Key features of AFS include:

• Line-by-line aggregation: These statements must aggregate the standalone financial statements for all group members (which are prepared under IFRS), based on a line-by-line aggregation of captions and then eliminating intra-group transactions. However, this is subject to the following exceptions.
  • Investments in subsidiaries which are members of the same Tax Group, and corresponding equity recorded by subsidiaries, are not required to be eliminated.
  • The AFS should not reflect accounting implications of IFRS 3 and IFRS 10 for business combination effected via share purchase (no goodwill, bargain purchase, recognition of intangible assets etc. on account of business combination effected via share purchase).
  • No elimination is required in case of any impairment recorded for investment in a subsidiary which is a member of the tax group.
  • Where a member recognized a deductible loss (e.g. an impairment loss on a loan receivable) in a tax period prior to joining the Tax Group, the related transaction cannot be eliminated until the deductible loss is reversed. The reversal will be taxable in the hands of the Tax Group.
• The following transactions between Tax Group members must be eliminated:
  • Valuation adjustments and provisions relating to intra-group transactions.
  • Changes in the accounting values of assets and liabilities that arise as a consequence of gains or losses on transactions between Tax Group members.
• Non-group investments: Investments in subsidiaries, joint ventures and associates that are not members of the Tax Group must be carried at cost less impairment.
• Uniform accounting policies: All members of the Tax Group must apply uniform accounting policies when preparing their standalone financial statements
• Pre-tax profit or loss is aggregated, while corporate tax balances (both current and deferred) are not required to be disclosed. However, the AFS must disclose non-UAE taxes and taxes paid under Emirate-level taxation, where applicable.
• The allocation of the tax liability among members in their standalone Financial Statements (‘FS’) is not mandated under the Corporate Tax Law; rather, this remains a matter of commercial arrangement within the group.

• Tax periods commencing before 1 January 2025: All Tax Groups are required to maintain AFS. An audit will only be required where the consolidated revenue of the Tax Group exceeds AED 50 million.
• Tax periods commencing on or after 1 January 2025: All Tax Groups, regardless of revenue thresholds, must prepare audited AFS.

• Tax Groups must adhere to strict disclosure requirements when preparing AFS, including:
• AFS must be prepared in AED.
• Comparative information for the previous tax period must be presented (except where the group is reporting for the first time).
• The following four statements are mandatory to be included as part of AFS:
• 1. Aggregated Statement of Financial Position
  2. Aggregated Statement of Profit or Loss
  3. Aggregated Statement of Other Comprehensive Income
  4. Aggregated Statement of Changes in Equity
• It is important to note here that a statement of cashflow is not listed as a requirement.
• AFS must also include comprehensive disclosures on:
  • The special purpose framework applied.
  • The basis of aggregation (e.g. details of entities included, ownership and voting rights, and profit entitlements).
  • Key accounting policies, estimates, and judgments applied in the preparation.
  • Explanatory notes to provide further clarity on material balances.
• A template for the auditor’s report and the basis of preparation has been provided as part of the Clarification.

• Where a member exits a Tax Group, the following rules apply:
• The exiting member must continue to prepare standalone financial statements, applying the same accounting policies as those used by the Tax Group.
• For opening balances, the member must adopt the values used in the Tax Group’s AFS. Where accounting standards do not permit this, the taxable income must nevertheless be computed in a manner that gives effect to the Tax Group values.
• A clawback rule applies where a member exits within two years of an intra-group transfer. In such cases, any eliminated gains or losses from the original intra-group transaction must be reinstated into taxable income. A cost step-up may, however, be available.

• The FTA’s clarification includes several practical examples to illustrate the application of these principles, including:
• The treatment of loan impairments between group members.
• The tax implications of asset transfers within the group and their impact on depreciation claims.
• The application of clawback provisions in cases of early member exits.

• Tax Groups must recognize that AFS are not equivalent to IFRS consolidated accounts and require a different framework.
• Audited FS is mandatory for all Tax Groups with financials years commencing on or after 1 January 2025.
• A cash flow statement is not required to be included in the AFS.
• Investments in subsidiaries, joint ventures and associates which are not members of the Tax Group must be carried at cost less impairment.
• Although the decision applies to tax periods beginning 1 January 2025, companies forming a Tax Group in earlier periods must consider the appropriate approach for those earlier periods. This would need a practical assessment considering the fast-approaching deadline of 30 September 2025 for many entities.
• Member exits must be carefully managed to avoid unexpected tax consequences, particularly with respect to the two-year clawback rule.
• If you need any assistance, please reach out to your advisors at KPMG or the contacts mentioned below.