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Accounting and audit of companies in the UAE
The United Arab Emirates (UAE) is a rapidly developing country located on the shores of the Persian Gulf. Despite its relatively small territory, the country efficiently utilizes its resources and infrastructure. Today, the UAE is one of the global leaders in terms of the volume of foreign direct investment and a key business hub hosting the offices of many international companies.
The UAE is home to numerous Free Economic Zones (Free Zones), each focused on specific types of business-trade, logistics, finance, IT, manufacturing, media, and more. Companies registered in such zones may receive tax incentives, including corporate tax exemption (subject to certain conditions). Free Zones allow 100% foreign ownership, as well as simplified procedures for import/export and profit repatriation.
Table of contents
Financial reporting requirements in the UAE
In the United Arab Emirates, financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS).
Depending on the legal form of the company, the reporting requirements vary:
- Offshore Company
Generally, financial statements are not submitted to government authorities. However, the company is obligated to maintain financial records reflecting its operations and financial position. Directors must prepare annual reports for shareholders.
- Free Zone Company
Accounting is mandatory.
The accounting system must allow the determination of the company's financial position, including assets, liabilities, and cash flow. The document retention period depends on the rules of the specific Free Zone.
- Mainland Company
Must maintain accounting records and retain documents for at least five years following the end of the financial year. An annual audit is conducted, and financial statements are submitted in accordance with the Commercial Companies Law.
Documents are submitted to the Ministry of Finance or the Ministry of Industry for license renewal.
The company must hold one of the six license types: industrial, commercial, tourism, agricultural, professional, or art license.
Audit of financial statements in the UAE
In the UAE, audit requirements depend on the type and location of company registration.
For Mainland companies, an audit is not always legally mandatory, but banks, investors, and regulatory authorities may request it.
An audit is also required to renew a license in certain emirates or sectors.
For Free Zone companies, an annual audit is mandatory (e.g., DMCC, JAFZA, DIFC).
For Offshore companies, an audit is generally not required, but it may be requested by shareholders or to enhance corporate transparency.
Some Free Zones may require the signing of an Auditor’s Appointment Letter during the company registration process.
In high-reputation Emirates-Abu Dhabi, Dubai, and Sharjah—audits are required. In the northern emirates, audits are generally not mandatory, except in Ras Al Khaimah.
Taxes in the UAE
As of June 1, 2023, all legal entities in the UAE, including Free Zone companies, are required to register for Corporate Tax purposes.
The base rate is 9% on profits exceeding AED 375,000.
Profits below this threshold are exempt.
This rule applies to all organizations, including branches and representative offices of foreign companies registered in the UAE.
Free Zone companies may qualify for a 0% tax rate if they meet the criteria for Qualifying Free Zone Person (QFZP) status.
To qualify, a company must conduct “qualifying activities” as defined in Article 18 of the UAE Corporate Tax Law, maintain an adequate economic presence in the UAE, and comply with timely tax reporting requirements.
In addition to Corporate Tax, the UAE has a Value Added Tax (VAT). The standard rate is 5%, applicable to most goods and services.
Companies with annual turnover exceeding AED 375,000 must register as VAT payers.
Some sectors, such as education, healthcare, and exports may qualify for a 0% rate or full exemption.
Deadlines for preparing financial and tax reports in the UAE
In the UAE, the fiscal year usually coincides with the calendar year. However, the timing of the first report depends on the company’s registration date.
If a company is registered in the current year, its first corporate tax period will align with its first financial year, as defined by the Commercial Companies Law.
This first financial year can range from 6 to 18 months and does not have to end on December 31.
The company selects its financial year-end date—e.g., June 30, September 30, or December 31.
The Federal Tax Authority (FTA) accepts this period as the first tax period if the end date is specified at registration.
The first financial year must begin on or after June 1, 2023.
If it begins before this date, then the first tax period will be the next financial year starting on or after June 1, 2023.
The tax return must be filed within 9 months after the end of the first tax period.
Details are provided in the FTA’s public clarification dated August 13, 2024.
Typically, companies are given 3 to 9 months after the fiscal year-end to prepare the audited report.
The deadlines may vary depending on the Free Zone.
Penalties for late financial and tax reporting in the UAE
Companies that fail to submit financial reports on time may incur a penalty of AED 5,000 (~USD 1,400) for each month of delay.
Failure to provide audited financial statements may result in the denial of business license renewal.
Late submission of tax returns can lead to fines of up to AED 10,000 (~USD 2,722).
Consolidated financial statements in the UAE
Companies with subsidiaries are required to prepare consolidated financial statements for their group.
Our accounting and audit services for legal entities in the UAE
Law&Trust International offers comprehensive solutions in auditing and financial reporting, ensuring the accuracy and reliability of your data.
We help companies comply with international and national standards, minimize risks, and make informed management decisions.
In the UAE, Law&Trust can assist with the following services:
- Preparation of financial statements in accordance with IFRS
- Monthly accounting in an automated system
- Corporate Tax and VAT registration
- Financial statement audits by licensed UAE auditors
- Audit of consolidated financial statements or components under IFRS
- Assessment of VAT registration obligations
- Financial activity analysis for tax optimization and more
Financial reporting is a key element of a successful business.
Without a competent audit, it's impossible to assess a company’s true condition and make correct decisions.
That's why you need professionals who understand the nuances of financial legislation.
F.A.Q.
Why can companies in the UAE face fines for accounting issues even with a zero tax rate?
Even with a 0% tax rate, UAE companies can be fined for failing to comply with accounting and reporting requirements. Tax and regulatory laws in the UAE require all companies-regardless of their tax rate-to maintain proper accounting and fulfill reporting obligations.
Reasons for possible penalties:
- Mandatory Corporate Tax registration. Since June 1, 2023, all companies in the UAE, including Free Zone and Offshore entities, must register with the Federal Tax Authority (FTA)-even if they are eligible for a 0% rate. Failure to register leads to fines.
- Failure to file or late submission of tax returns. Even if a company does not owe tax (e.g., profits under AED 375,000 or holding qualifying status), it is generally required to file a return, unless exempted by law.
- Lack of accounting and financial statements. IFRS-compliant accounting and financial reporting, and in some cases audits, are mandatory. Violations may lead to fines, especially in Free Zone and Mainland jurisdictions.
- Inaccurate or incomplete data. Reporting errors, missing supporting documents, and inconsistencies between accounting and actual operations may result in regulatory claims and administrative penalties.
- Failure to meet record retention requirements. Companies must retain financial and tax documentation for at least five years. Lack of records is another common reason for fines.
How can Free Zone companies be subject to taxation if they are «tax-exempt»?
Even if Free Zone companies claim to be “tax-exempt,” they are not entirely free from obligations. Their exemption is not automatic, but conditional on compliance with Federal Decree-Law No. 47 of 2022 on Corporate Tax.
A company may become subject to 9% tax if:
- It fails to maintain Qualifying Free Zone Person (QFZP) status
Non-compliance with Article 18 conditions:- Lack of economic substance (no employees, expenses, or assets in the zone);
- Violation of arm’s length principles in transfer pricing;
- Conducting non-qualifying activities without paying tax.
- It receives Non-Qualifying Income
Even if it is a QFZP, any income from non-qualifying activities is subject to 9% tax. Example: income from dealings with Mainland companies or banking operations (unless exempt). - It exceeds the de minimis threshold
If non-qualifying income exceeds AED 5 million or 5% of total revenue (whichever is higher), the company loses its QFZP status entirely, and the full income becomes taxable at 9%. - It fails to maintain separate accounting
Free Zone companies must maintain separate records for qualifying and non-qualifying income. Failure to do so may result in the entire profit being treated as taxable.
Why do auditors in the UAE often require proof of source of funds even from small businesses?
In the UAE, auditors scrutinize the source of funds even for small companies due to strict Anti-Money Laundering (AML) regulations. Local regulators place high importance on financial transparency, and auditors are required to examine any suspicious transactions Particular attention is given to high-risk transactions: payments to offshore jurisdictions, transfers to countries on “grey lists,” or large cash operations exceeding set limits. Auditors compare declared revenues to actual operations-if a shareholder claims multi-million dirham turnover but has no staff, office, or logistics infrastructure, this will inevitably raise questions and require further clarification.
