Proper Closure of books of accounts for Tax Year 2025

The UAE corporate tax regime is still new for many trading businesses, and 2025 will be the year when most firms feel the full weight of compliance. For trading companies that deal with fast-moving inventory, multiple suppliers, shifting price lists, and high transaction volumes, the year-end close is more than an accounting formality. It determines whether the corporate tax return is accurate, whether tax payments are made on time, and whether the business avoids unnecessary overpayments that strain cash flow.

Closing the books properly is the bridge between day-to-day operations and a clean corporate tax filing. Below is a clear, practical guide to help UAE trading firms prepare for the 2025 tax year close.

Start Early and Lock in Cutoff Dates

The biggest challenge trading firms face is the rush. By the time the financial year ends, teams are pulled in different directions. Procurement is still negotiating shipments, sales is chasing year-end targets, and finance is trying to freeze data long enough to close the books.

Set clear cutoff dates for recording purchase orders, receiving goods, issuing invoices, and settling returns. Communicate these dates early and remind teams weekly as you approach the year end. This creates cleaner ledgers and avoids missing invoices, unrecorded shipments, or late stock adjustments that distort taxable income.

Reconcile Inventory with Precision

Inventory is the beating heart of any trading business. It is also one of the most common sources of errors that lead to incorrect profit figures and unnecessary corporate tax charges.

To close the books on the 2025 tax year, firms must:

1. Conduct a full physical stock count.
   Do not rely solely on system balances. Variances between book stock and actual stock can be large in trading environments due to damage, shrinkage, mis-picks, or supplier delivery errors.

2. Investigate discrepancies.
   A variance is a symptom, not an answer. Trace the cause through GRNs, delivery notes, internal transfers, or supplier claims.

3. Update the inventory records with approved adjustments.
   Only after approvals should adjustments hit the accounts. This ensures the cost of goods sold (COGS) is correct and profit is not overstated or understated.

Getting inventory right reduces the risk of overpaying tax. If inventory is understated, COGS is overstated, and profits look lower. If inventory is overstated, profit looks higher and the tax bill rises. Precision protects you from both extremes.

Validate Supplier Invoices and Purchase Accruals

Trading firms often face delays in receiving supplier invoices, especially when suppliers are outside the UAE. This creates pressure at year end because costs must be recognized in the right period for tax purposes.

To avoid misstatements:

1. Match every purchase order, GRN, and invoice.
   Three-way matching ensures only legitimate costs make it into the accounts.

2. Create accruals for goods received but not yet invoiced.
   If the goods are already in your warehouse, the cost belongs in the 2025 financial year even if the invoice arrives later. Missing accruals inflate profits artificially.

3. Reverse outdated accruals.
   Accruals that sit in the system with no supporting documents or supplier confirmations should be reviewed and reversed before closing the year.

Accurate accruals prevent inflated profits and the risk of paying corporate tax on income that is not real.

Confirm All Sales Invoices, Returns, and Discounts

Revenue recognition must be airtight. Trading firms often issue invoices close to the year end, process last-minute returns, or offer special discounts to boost sales. These activities all affect the corporate tax calculation.

Before closing the books:

1. Reconcile sales ledgers with dispatch logs and delivery notes.
   An unshipped sale should not be recorded as revenue.

2. Record all approved credit notes for returns or damaged goods.
   Leaving them out creates false revenue and an inflated tax liability.

3. Verify end-of-year promotions or volume discounts.
   Customer rebates and incentives should be recorded as deductions from revenue in the correct period.

Clean revenue numbers mean clean taxable income. Anything less leads to tax trouble or overpayment.

Review Provisions, Prepayments, and Other Adjustments

Provisions and prepayments are areas the FTA examines closely. Trading companies must ensure these are supported by clear documentation.

Key items to review include:

1. Warranty or replacement provisions.
   If your business sells products with service commitments, provisions must reflect realistic, data-backed expectations.

2. Bad debt provisions.
   You cannot simply estimate bad debts. You need evidence that collection is doubtful and that you took reasonable steps to recover the amounts.

3. Prepaid expenses.
   Insurance, rent, subscriptions, and annual service fees should be allocated between years accurately.

These adjustments help ensure taxable income reflects the true economic performance of the business.

Ensure Compliance with Corporate Tax Adjustments

The UAE corporate tax law requires certain accounting adjustments to arrive at taxable income. These often include:

1. Entertainment expenses subject to partial deduction.
   Only 50 percent of qualifying expenses can be deducted.

2. Non-deductible fines and penalties.
   These must be added back when computing taxable income.

3. Interest deduction limitations.
   Thin capitalization or related-party financing rules may restrict how much interest your business can deduct.

4. Transfer pricing adjustments.
   If you buy or sell from related parties, ensure your pricing aligns with arm’s-length principles and that you maintain a local file and master file if required.

These steps prevent filing errors and avoid costly reassessments later.

Clean Up Intercompany and Related Party Balances

Many trading firms operate multiple entities for distribution, logistics, or brand management. Year-end is the moment to review intercompany transactions.

Settlement mismatches or unrecorded recharges often distort profit. When one entity shows a receivable and the other does not show the matching payable, the tax return is at risk.

Reconcile balances, match transactions, and document the basis for any intercompany pricing. This reduces exposure to transfer pricing disputes and tax corrections.

Prepare the Financial Statements Early

The corporate tax return relies on your financial statements, so they must be finalized as early as possible. Waiting until the filing deadline creates pressure that leads to errors.

Prepare draft financial statements soon after the year closes. Share them with auditors early. Resolve audit queries before the return is due. A smooth audit often leads to a smoother tax filing.

Submit the Corporate Tax Return on Time

With clean books, reconciled balances, correct accruals, and compliance adjustments done, the return becomes a straightforward task.

Filing early gives you time to fix issues, avoid penalties, and ensure you are not overpaying. It also protects your cash flow because accurate computations help you avoid paying more tax than necessary.

Final Thought

A proper year-end close is not just an accounting ritual. It is the backbone of accurate tax compliance for UAE trading firms. Clean books mean confident filings, fewer surprises, and healthier cash flow. Start early, reconcile thoroughly, document everything, and treat the 2025 tax year close as a strategic priority, not a routine task.