Definition

Deferred Tax is the future tax effect of temporary differences between accounting profit and taxable profit under UAE Corporate Tax law. It represents tax that will be paid or recovered in later periods when these differences reverse.

Key points

• Common causes: depreciation timing, accrued expenses, or provisions.
• Recognized using IFRS standards.
• Deferred tax assets arise when future deductions reduce tax liability; deferred tax liabilities arise when future income increases it.
• Does not affect cash flow until realized.

Practical example

A UAE company uses faster tax depreciation than accounting depreciation, creating a deferred tax liability that will reverse in later years.

Why it matters

Understanding deferred tax ensures accurate financial reporting and avoids surprises in future tax payments.