Since corporate tax took effect in June 2023, accounting in the UAE has changed character entirely. Financial statements used to be prepared only when a bank or an investor asked for them; today every taxable person files corporate tax on the basis of its accounting records, and any review by the Federal Tax Authority (FTA) begins with those records. Free zone entities are no exception.
1. The UAE Accounting Framework — IFRS by Default
Under the UAE Corporate Tax Law, taxable income is computed starting from financial statements prepared under IFRS (International Financial Reporting Standards). There are, however, options depending on size.
- Default: full IFRS
- Annual revenue of AED 50 million or less: the simplified IFRS for SMEs may be applied
- Annual revenue of AED 3 million or less: cash basis accounting may be elected
For a group whose parent reports under IFRS, aligning the UAE entity to full IFRS is the better choice for consolidation purposes. For a small standalone local entity, applying IFRS for SMEs to reduce the bookkeeping burden is usually the more sensible answer in practice.
2. Who Must Keep Books and Prepare Financial Statements
The short answer is almost every entity doing business in the UAE. Under the Commercial Companies Law a company must maintain accounting records, and the Corporate Tax Law requires every taxable person to prepare and retain financial statements, books and supporting documents capable of substantiating its taxable income.
Free zones deserve particular attention. The requirements are stricter, not looser, for a Qualifying Free Zone Person (QFZP) seeking the 0% corporate tax rate: audited financial statements are a condition of keeping the benefit. The opposite misconception — “we are in a free zone, so we do not need books” — remains widespread.
3. When an Audit Becomes Mandatory
For corporate tax purposes, audited financial statements are mandatory for two categories.
- Entities with annual revenue (total income) above AED 50 million
- Qualifying Free Zone Persons (QFZPs): all of them, regardless of revenue
On top of that, a large number of free zones, including DMCC and JAFZA, require an audit report to be filed each year as a condition of licence renewal. An audit is therefore effectively unavoidable in many cases even where the tax law does not require one, so the rules of the free zone in which the entity is registered should be checked separately.
4. How Long Records and Supporting Documents Must Be Kept
- Corporate tax: seven years from the end of the relevant tax period
- VAT: five years (15 years for real estate records)
- Commercial Companies Law: accounting records for a minimum of five years
In practice we recommend retaining everything to the longest of these standards, seven years. The scope covers all evidence supporting taxable income — contracts, invoices, bank statements and payroll records included — and it must be in a state where it can be produced on request by the FTA.
Under the e-invoicing regime being phased in from 2026, failure to retain invoice data attracts a penalty of AED 10,000 per instance. Record retention now goes beyond “being ready for a tax audit”: it is a penalty risk to be managed in its own right.
5. Four Practical Points for Groups with an Overseas Parent
- Setting the financial year: decide at the incorporation stage whether to align with the parent’s year end (December) or follow common UAE practice (a June year end, for example), so that corporate tax filing deadlines do not become tangled later.
- Functional currency and translation: the books are kept in dirhams (AED) as a matter of principle, and a separate translation framework for group consolidation should be established.
- A monthly close: bookkeeping crammed into the year end lowers the quality of the corporate tax return. Closing monthly and filing supporting documents as you go saves money in the end.
- Checkpoints when outsourcing: before appointing a bookkeeping provider, confirm that the person doing the work holds a genuine accounting qualification, that the same provider takes consistent responsibility through to corporate tax and VAT filing, and that reporting back to your head office is supported in your own language.
Closing Thoughts
Accounting in the UAE is no longer an administrative task that can be pushed back. The framework you choose drives the corporate tax computation, and the quality of your books determines how a tax audit goes and whether free zone benefits survive. If you are at the incorporation stage, start with the financial year and the bookkeeping framework; if you are already operating, start with your audit obligations and the state of your records. The detail varies with the structure of the business, so please get in touch to confirm your specific position.