Accounting

Deferred Tax Explained Under IAS 12 and UAE Corporate Tax – Complete Guide

Learn Deferred Tax under IAS 12 and UAE Corporate Tax with simple examples. Understand Deferred Tax Liability, Deferred Tax Asset, Temporary Differences, Tax Losses, and calculation methods with practical explanations.

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24 May 2026 - 14:30

Updated: 5 months ago

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Deferred Tax

Deferred Tax Explained Under IAS 12 and UAE Corporate Tax

Deferred Tax is one of the most important concepts in Financial Reporting (IFRS) and UAE Corporate Tax. Many finance professionals confuse Deferred Tax because it involves both accounting rules and tax law. This guide explains Deferred Tax in a simple and practical way.

1. What is Deferred Tax?

Deferred Tax is the tax that will be paid or saved in the future due to temporary differences between accounting profit and taxable profit.

Simple definition:
Deferred Tax = Tax impact of temporary differences between Carrying Amount and Tax Base.

2. Why Deferred Tax Arises?

Deferred tax arises because:

Accounting rules (IFRS) are different from Tax Law
Some expenses are allowed in accounting but not in tax
Some depreciation rates are different
Some income is taxed earlier or later

3. Deferred Tax Liability vs Deferred Tax Asset

Type	Meaning
Deferred Tax Liability (DTL)	Tax payable in future
Deferred Tax Asset (DTA)	Tax recoverable in future

Golden Rule:

Save tax today → Deferred Tax Liability
Pay extra tax today → Deferred Tax Asset

4. Carrying Amount vs Tax Base

Term	Meaning
Carrying Amount	Value of asset/liability in accounting books
Tax Base	Value of asset/liability as per tax law

Deferred Tax Formula

Deferred Tax = (Carrying Amount – Tax Base) × Tax Rate

5. Temporary vs Permanent Difference

Difference Type	Deferred Tax
Temporary Difference	Yes
Permanent Difference	No

Temporary Differences Examples

Depreciation difference
Provision for gratuity
Leave salary provision
Accrued expenses
IFRS 16 Lease

Permanent Differences Examples

Fines and penalties
50% entertainment expenses disallowed
Non-allowed donations
Exempt dividend income

6. Depreciation Example (Deferred Tax Liability)

Particular	Accounting	Tax
Depreciation	10,000	30,000

Carrying Amount = 90,000
Tax Base = 70,000
Temporary Difference = 20,000
Deferred Tax Liability = 20,000 × 9% = 1,800

7. Deferred Tax Asset Example (Provision)

If provision expense is allowed in accounting but not allowed in tax until paid, it creates Deferred Tax Asset because company pays more tax now and will save tax later.

8. Deferred Tax on Tax Losses

If a company has tax losses, it can carry forward losses and reduce future taxable income.

Deferred Tax Asset = Tax Loss × Tax Rate

9. IAS 12 Method – Balance Sheet Approach

As per IAS 12, deferred tax is calculated using the Balance Sheet Method:

Take Carrying Amount
Calculate Tax Base
Find Temporary Difference
Apply Tax Rate
Identify DTL or DTA

10. Presentation in Financial Statements

Statement	Treatment
Balance Sheet	Show as Asset or Liability
Profit & Loss	Shown as Deferred Tax Expense

11. Deferred Tax in UAE Corporate Tax

Deferred tax is an IFRS concept and used in financial statements. It is not directly payable to FTA but affects financial reporting and tax planning under UAE Corporate Tax.

For more details on UAE Corporate Tax, visit the official FTA website:
Federal Tax Authority – UAE

12. Deferred Tax Journal Entries

Deferred tax is recorded through journal entries at the end of the financial year.

When Deferred Tax Liability (DTL) arises

Situation: Company saves tax today and will pay more tax in future.

Dr Income Tax Expense
    Cr Deferred Tax Liability

When Deferred Tax Asset (DTA) arises

Situation: Company pays more tax today and will save tax in future.

Dr Deferred Tax Asset
    Cr Income Tax Expense

13. Deferred Tax Settlement / Reversal

Deferred tax does not remain forever. It reverses in future when the temporary difference reverses.

Example: Depreciation difference

Year	Accounting Dep	Tax Dep	Difference
Year 1	10,000	30,000	20,000
Year 2	10,000	21,000	11,000
Year 3	10,000	14,700	4,700
Later Years	10,000	Less	Reversal

In later years, tax depreciation becomes lower than accounting depreciation, so the earlier Deferred Tax Liability starts reversing.

Journal Entry for Reversal (DTL)

Dr Deferred Tax Liability
    Cr Income Tax Expense

This reduces tax expense in future.

14. Full Deferred Tax Example (Complete Calculation)

Item	Carrying Amount	Tax Base	Difference	Tax 9%	DTL/DTA
Fixed Assets	90,000	70,000	20,000	1,800	DTL
Provision Gratuity	10,000	0	10,000	900	DTA
Accrued Expense	5,000	0	5,000	450	DTA

Total DTL = 1,800
Total DTA = 1,350

Net Deferred Tax Liability = 450

Journal Entry:

Dr Income Tax Expense 450
    Cr Deferred Tax Liability 450

15. Deferred Tax in Financial Statements

Balance Sheet

Deferred Tax Asset → Non-current Asset
Deferred Tax Liability → Non-current Liability

Profit & Loss

Total Tax Expense is calculated as:

Current Tax
+ Deferred Tax
= Total Tax Expense

16. Current Tax vs Deferred Tax

Type	Meaning
Current Tax	Tax payable to FTA now
Deferred Tax	Tax payable or recoverable in future

17. Common Items Creating Deferred Tax

Item	Deferred Tax Type
Depreciation	DTL
Provision for Gratuity	DTA
Leave Salary Provision	DTA
Accrued Expenses	DTA
Revaluation Gain	DTL
Tax Losses	DTA

18. Golden Rules of Deferred Tax

If you save tax today → Deferred Tax Liability
If you pay extra tax today → Deferred Tax Asset

19. Complete Deferred Tax Calculation Process

Find Carrying Amount
Find Tax Base
Calculate Temporary Difference
Apply Tax Rate
Identify DTL or DTA
Pass Journal Entry
Show in Financial Statements

20. IAS 12 Official Definition

Deferred tax is the tax payable or recoverable in future periods arising from temporary differences between the carrying amount of assets and liabilities in the statement of financial position and their tax base.

Conclusion

Deferred Tax arises due to temporary differences between accounting and tax treatment. Understanding Carrying Amount vs Tax Base is the key to calculating deferred tax correctly under IAS 12 and UAE Corporate Tax.