In short
If a restatement shows a filed Corporate Tax return understated the tax payable, Article 10 of the Tax Procedures Law requires a voluntary disclosure for that period. The next year's return cannot absorb it: an IAS 8 restatement adjusts opening retained earnings, not current profit. Under Cabinet Decision No. 75 of 2023, disclosure costs 1% a month on the tax difference.
For most calendar-year businesses, FY2024 was the first Corporate Tax period. Those accounts were often closed in a hurry by teams still learning the rules, and FY2025 audits are now finding mistakes in them: revenue in the wrong year, missed accruals, wrong depreciation, related-party balances that never reconciled.
The accounting answer is settled. The tax answer is where businesses go wrong, usually by assuming that once the auditor has fixed the comparatives the matter is closed. For Corporate Tax, it has just started.
The accounts and the tax return follow different rules
Under IAS 8, a material prior-period error is not run through the current year's profit. The comparatives are restated and the opening balances adjusted, as if the error had never happened. The FY2025 accounts show a corrected FY2024 column and an adjustment to opening retained earnings.
That is exactly the problem for tax. Taxable income starts from the accounting income of each Tax Period. An adjustment that sits in opening retained earnings never passes through FY2025 profit, so the FY2025 return does not pick it up, while the FY2024 return already filed still carries the old figure. Unless someone acts, the error is never taxed, or never refunded.
The opposite mistake is just as common: skipping the restatement and booking the correction as a prior-year adjustment inside FY2025 profit. That moves the tax into the wrong year. Even at the same rate it leaves an incorrect FY2024 return, and it can distort reliefs and thresholds in both years.
What the law requires, and when
Article 10 of the Tax Procedures Law, as amended by Federal Decree-Law No. 17 of 2025, sets three different rules depending on the direction of the error:
| The error | What the law says |
|---|---|
| Tax payable was understated | The Taxable Person shall submit a voluntary disclosure (Article 10(1)) |
| Tax payable was overstated | The Taxable Person may submit a voluntary disclosure (Article 10(3)) |
| No difference in the tax due | Corrected through a Tax Return, unless the FTA specifies that a voluntary disclosure is required (Article 10(5)) |
Timing sits in the Executive Regulation. As published, Article 10 of Cabinet Decision No. 74 of 2023 requires a voluntary disclosure within 20 business days of becoming aware of the error where the understated tax exceeds AED 10,000. Where it is AED 10,000 or less, the error is corrected in the next Tax Return due, or by voluntary disclosure within 20 business days if there is no return to correct it in.
There is also an outer limit. A voluntary disclosure cannot be submitted more than five years after the end of the relevant Tax Period, except for one relating to a refund application the FTA has not yet decided.
When was the error "discovered"?
The clock runs from when the business becomes aware of the error, and the law does not define that moment further. A defensible position is that it is no later than the date management accepts the auditor's adjustment. If the FY2025 accounts were signed months ago and the FY2024 return has not been touched, the deadline has probably passed, which is a reason to move now. The FTA receives your financial statements, and a restated comparative column is easy to spot.
What it costs: Cabinet Decision No. 75 of 2023
Corporate Tax penalties sit in Cabinet Decision No. 75 of 2023 and its amendments. The 2025 penalty reform under Cabinet Decision No. 129 of 2025 amends Cabinet Decision No. 40 of 2017, which governs VAT and Excise Tax, so it does not change these figures.
| Situation | Penalty |
|---|---|
| Voluntary disclosure of an error in a return | 1% a month on the tax difference, from the day after the original due date until the disclosure is submitted |
| No voluntary disclosure before the FTA notifies a tax audit | A fixed 15% of the tax difference, plus 1% a month |
| Tax not paid by its due date | 14% a year, applied monthly on the unsettled amount |
Disclosing first is always cheaper than being found, and once an audit has been notified the gentler treatment is gone.
The knock-on effects most people miss
The tax on the error itself is rarely the whole story. A restated FY2024 can change which rules applied in the first place.
| What the restatement can change | Why it matters |
|---|---|
| Small Business Relief | Revenue restated above AED 3 million means the relief was never available, and the disqualification is permanent once revenue has ever exceeded the line |
| Free zone status | Restated non-qualifying revenue can breach the de minimis limit and cost the 0% rate for five periods |
| Tax losses | A changed FY2024 loss changes what can be used in FY2025, so the FY2025 return may need correcting too |
| Audited accounts | Revenue restated above AED 50 million brings the audited financial statements requirement into play |
| Related parties | Restated balances can change transfer pricing positions and the disclosure form |
| VAT | If the error concerns revenue or purchases, VAT returns may also need correcting, under the VAT penalty regime |
Treat a restatement as a full re-run of the FY2024 tax position, not a one-line correction. And because FY2025 returns for calendar-year businesses were due by 30 September 2026, check whether that return now needs correcting as well.
What a good process looks like
- Record the discovery date: when the error was identified and who accepted it. This starts the clock.
- Split the restatement by error, with the year each belongs to and its effect on taxable income.
- Rebuild the FY2024 tax computation on the restated numbers, re-running every relief, exemption, threshold and loss.
- Decide the route for each error: voluntary disclosure where tax was understated, a return correction where the rules allow it.
- Check FY2025 and VAT, so no item is counted twice and affected VAT periods are corrected.
- File, pay and keep the file: submit with a clear explanation, pay on time, and keep working papers linking the restated accounts to the disclosure.
In an FTA audit the question will not be whether there was an error. It will be whether it was corrected properly and on time. A clean paper trail answers both.
How BIFI Partners helps
BIFI Partners works where audit findings meet Corporate Tax. We map each audit adjustment to its tax year, re-run the FY2024 position on the restated figures, prepare and submit the voluntary disclosure on EmaraTax with an explanation to the FTA, calculate the penalty exposure, and check FY2025 and VAT so nothing is counted twice.
Key takeaways
- An IAS 8 restatement adjusts opening retained earnings, so it never passes through the current year's taxable income.
- If the restated year's tax was understated, Article 10(1) of the Tax Procedures Law requires a voluntary disclosure for that year.
- Booking the correction in FY2025 profit leaves the FY2024 return wrong and can distort reliefs in both years.
- As published, the Executive Regulation requires disclosure within 20 business days where the tax difference exceeds AED 10,000.
- No voluntary disclosure can be made more than five years after the end of the Tax Period.
- Corporate Tax penalties are in Cabinet Decision No. 75 of 2023: 1% a month on a voluntary disclosure; 15% plus 1% a month if an audit is notified first.
- Cabinet Decision No. 129 of 2025 amends the VAT and Excise penalty regime, not Corporate Tax.
- A restatement can change Small Business Relief, free zone status, losses and the audit requirement, not just the tax figure.
Sources
- Federal Decree-Law No. 28 of 2022 on Tax Procedures, and its amendments including Federal Decree-Law No. 17 of 2025 — Article 10 (PDF)
- Cabinet Decision No. 74 of 2023 on the Executive Regulation of the Tax Procedures Law — Article 10 (PDF)
- Cabinet Decision No. 75 of 2023 on Administrative Penalties for the Corporate Tax Law, and its amendments (PDF)
- Ministry of Finance — amendments to the Tax Procedures Executive Regulation effective April 2026