The “Accruals” Trap: How Missing Expenses Inflate Your 9% Corporate Tax.

Here is a scary fact for every business owner in the UAE: You might be about to pay 9% tax on money you don’t actually have.

This happens because of a common accounting mistake called the “Accruals Trap.”

Under the new UAE Corporate Tax Law, your taxable income is based on your accounting income. Most businesses with revenue over AED 3 million must use accrual basis accounting UAE. This means you must record an expense when it happens, not when you pay for it.

If you forget to record an expense in December 2025, your profit will look artificially high. The Federal Tax Authority (FTA) will tax you on that high number. You effectively pay a 9% penalty for your own mistake.

Here is how to find those missing expenses and legally lower your tax bill.

The Math: How “Phantom Profit” Costs You Money

Imagine your company made AED 1,000,000 in net profit in 2025. You calculate your 9% Corporate Tax (above the AED 375k threshold) and prepare to pay.

But wait. You forgot that your legal team did AED 50,000 worth of work in December, but they won’t invoice you until February 2026.

• Scenario A (The Mistake): You close the books without the accrual. Your profit stays at AED 1,000,000. You pay tax on that full amount.
• Scenario B (The Hard Close): You book an accrual for AED 50,000. Your profit drops to AED 950,000. Your tax bill drops instantly.

If you miss this, you are donating cash to the government that you didn’t need to pay.

The SOP: Search for Unrecorded Liabilities

You cannot rely on memory. You need a systematic test. Auditors call this the “Search for Unrecorded Liabilities.”

Step 1: The “Post-Year-End” Payment Review

• Action: Export your bank statement for January and February 2026.
• The Test: Look at every single payment over AED 1,000.
• The Question: “Did we receive this service or good before December 31st?”

Step 2: Check the “Service Period” on Invoices

• Action: Look at the invoices for those Jan/Feb payments.
• Red Flag: An invoice dated Jan 15th that says “Service Period: Dec 01 – Dec 31.”
• The Fix: You must record this expense in 2025 via a Journal Entry (Debit Expense, Credit Accruals). This is a taxable income calculation adjustment that saves you money.

Step 3: The “Recurring Expense” Audit

• Action: Check your standard monthly bills (DEWA, Internet, Rent, Retainer Fees).
• The Test: Do you have 12 expenses recorded for 2025? If you only count 11, you are missing December. Accrue it immediately.

Common Hidden Accruals in UAE Business

Don’t forget to check these three specific areas. They are the most common sources of unrecorded liabilities:

1. Staff Commissions: Sales teams often earn December commissions that are paid in January. If the sale happened in 2025, the expense belongs in 2025.
2. Audit & Legal Fees: Your external audit happens in 2026, but the obligation relates to the 2025 year. You should accrue the audit fee in 2025.
3. Utilities: DEWA and Empower bills often arrive late. Estimate the December amount based on November usage if the bill isn’t ready.

Why Fixing This in 2026 is Too Late

You might think, “I’ll just claim the expense in 2026 when I pay it.”

This is risky. The FTA requires expenses to be deducted in the tax period they were incurred. If you try to dump 2025 expenses into your 2026 return, the FTA auditor can disallow them because they don’t relate to 2026 revenue.

The result? You lose the deduction in 2025 (because you forgot it) AND you lose it in 2026 (because it doesn’t belong there). You lose twice.

FAQs: Accruals and Corporate Tax

Stop paying tax on phantom profit. DM us “ACCRUAL” on LinkedIn for our “Search for Unrecorded Liabilities” Template.

Author: Laila Al Hemeiri Service: Corporate Tax Services