Preparing and filing financial statements and tax returns of and conducting an audit for a United Arab Emirates (UAE) company. Service offer

As many UAE companies are required to regularly file financial statements and pay taxes (such as VAT), we recommend, before registering a UAE company, seeking advice from lawyers, accountants (including specialists of the non-resident audit department) and tax experts for assessing the tax burden of the company and discussing its subsequent administration (which advice we are ready to arrange upon request). We also recommend obtaining prior advice from these specialists in the case of subsequent changes in the company’s operations or before making any major transactions.

Every UAE company, regardless of its type and legal form, must keep accounting records sufficient to confirm its financial position and reflecting up-to-date information about the assets and liabilities of the company. Such records and underlying documents must be available for inspection at all times.

Accounting records must be retained for at least 5 years after the company’s financial year-end. Non-compliance with accounting records retention period may make a company liable to a fine from AED 20 000 to AED 100 000, and failure to keep and, consequently, retain accounting records – to a fine from AED 50 000 to AED 500 000. The regulations of free zones may set fines of a different size for similar non-compliances.

For UAE free-zone companies, the accounting records retention period can be more than 5 years, depending on the specific free zone. This rule applies not only to the so-called onshore companies, but also to offshore companies registered in free zones. For example, in accordance with the Regulations[1], an offshore company registered in Ajman Free Zone is not required to file financial statements with any UAE government authorities, but must retain for 10 years such documentation regarding the company’s business operations that allows the directors to determine its financial position (in addition, the directors of such a company have a duty to annually prepare and provide financial statements to the shareholders). Or, for example, every Abu Dhabi Global Market company is required to retain accounting records for 10 years from the date of their making.

The law may also increase the retention period for accounting records and documentation of companies engaged in certain types of activities, such as companies operating in the real estate market.

Mainland companies and most onshore free-zone companies must prepare financial statements and conduct an audit on an annual basis. There are free zones in which companies are required to prepare financial statements annually, but are not required to conduct an audit or submit audited financial statements to any government authorities (such as Sharjah Media City).

The requirement to audit financial statements does not generally apply to offshore companies (although there are exceptions[2]). However, they (like all UAE companies) have a duty to keep and retain accounting records. In addition, directors are required to annually prepare and circulate financial statements to the company’s shareholders.

Speaking of the requirement to audit financial statements of an onshore company registered in one of the many UAE free zones, the information is given (in a simplified form) in the table[3] below:

Abu Dhabi

Media free zone twofour54 Abu Dhabi (twofour54)

Audit is mandatory.

However, even companies that are exempt from mandatory audit under the UAE legislation may still need to audit their financial statements if they are requested to do so by a bank or a counterparty (for example, when entering into a major transaction), and in order to comply with foreign legislation.

This rule may be phrased slightly differently in some free zones, but its meaning remains the same. For example, the accounting period of a Ras Al Khaimah Free Zone (RAKEZ) company ends on 31 December each year. The end-date of the first accounting period depends on the company’s date of incorporation: if the company is registered in the first half of the year, the first accounting period of the company ends on 31 December of the same year; if the company is registered in the second half of the year, the first accounting period ends on 31 December of the year following the year of incorporation.

As for the deadline for preparing and submitting financial statements, it will depend on the type of the company (offshore / onshore / mainland) and the emirate / free zone in which it is registered. The deadline can be 3 to 9 months from the accounting period end.

For example, directors of a Dubai mainland company are required to prepare the company’s financial statements, including the auditor’s report, and present them at the annual general meeting within 3 months after the end of the financial year.

The similar deadline applies in such free zones as Dubai Multi Commodities Centre (DMCC, Dubai), Jebel Ali (JAFZA, Dubai) and Hamriyah (HFZA, Sharjah):

DMCC: at each reporting date, company directors must prepare financial statements of the company, including the auditor’s report, and present them at the annual general meeting within 3 months of the financial year-end.

JAFZA: at each reporting date, company directors must prepare financial statements of the company, including the auditor’s report; a copy of the signed financial statements accompanied by the auditor’s report must be submitted to the Free Zone Authority within 90 days of the company’s financial year-end (i.e. within 3 months);

HFZA: a company has 3 months from the end of the accounting period to prepare and submit audited financial statements to the government authorities.

Some free zones set this deadline at 4 months, such as Dubai South (DWC, Dubai) and Umm Al Quwain (UAQ):

DWC: a copy of the signed financial statements accompanied by the auditor’s report must be submitted to the Free Zone Authority within 30 days of approval and signing; financial statements must be approved by the Board of Directors and signed by at least one director within 3 months of the financial year-end; thus, a company has not more than 4 months from the end of the period to prepare and submit its audited financial statements;

UAQ: at each reporting date, company directors must prepare the company’s financial statements, including the auditor’s report, and present them to the shareholders at the annual general meeting within 4 months of the financial year-end (however, there is no requirement to submit financial statements to any authorities).

There are also free zones which give 6 months to prepare and submit financial statements, such as Khalifa Industrial Zone Abu Dhabi (KIZAD, Abu Dhabi), Dubai Internet City (DIC, Dubai) and Ras Al Khaimah Economic Zone (RAKEZ):

KIZAD and DIC: at each reporting date, company directors must prepare the company’s financial statements, including the auditor’s report, and present them at the annual general meeting within 6 months of the financial year-end; within 7 days after the annual general meeting, the company must submit copies of the financial statements and the auditor’s report to the Free Zone Authority;

RAKEZ: a company has 6 months from the end of the period to prepare and submit audited financial statements to the government authorities.

And, finally, there is an example of a free zone with a submission deadline of 9 months after the end of the accounting period – Abu Dhabi Global Market (ADGM, Abu Dhabi).

Some free zones require audited financial statements to be submitted to the Free Zone Authority when renewing the business licence (for example, Sharjah International Airport Free Zone). Submission of financial statements for licence renewal is also necessary for mainland companies.

Late filing of financial statements is subject to penalties. However, one of the most significant risks of not submitting financial statements on time to the Free Zone Authority is the refusal to renew / suspension of the company’s business licence.

To put together a set of documents for preparing the financial statements for every period ended, we ask clients to provide information on the company’s activities in the relevant accounting period:

1. statements of accounts at banks and EMIs (in electronic form, if available);
2. contracts and agreements made in the accounting period;
3. previously made contracts and agreements which continue in the accounting period in question (for example, loan agreements);
4. documents confirming that the company has assets on its books, for example:
   1. purchase agreements for shares / interests in subsidiaries and associated entities, constitutive documents and copies of financial statements for the relevant period – in the case of equity investments,
   2. broker statements – in the case of investments in securities,
   3. documents regarding intellectual property, etc.;
5. other underlying documentation related to the activity during this period / disclosing the business of the company in the accounting period (invoices, statements of work performed, way bills, etc.).

It is enough to provide copies of the above documents.

Companies registered in UAE free zones are exempt from capital gains tax, property tax and other taxes, except corporate tax and VAT.

From 1 January 2018, the UAE introduced a value added tax.

VAT as a general consumption tax applies to all transactions with goods and services, unless such transaction is exempted or taxed at 0% rate.

The standard VAT rate in the UAE is 5%.

There is no obligation to register for VAT unless the sales turnover within the country exceeds the registration threshold, which is AED 375 000 (~ USD 100 000) in the UAE.

Registration for VAT is required in the following cases:

It is possible to initiate a voluntary registration after exceeding the threshold of taxable transactions in the amount of AED 187 500 (~ USD 50 000).

Upon registration with the Federal Tax Administration and allocation of the VAT number, a company must prepare and file a quarterly (or monthly in the case of annual turnover exceeding AED 150 000 000, i.e. ~ USD 40 830 900) VAT return and pay the resulting VAT within 28 days of the VAT period end.

First, there are sectors of the economy where UAE companies are traditionally subject to corporate tax, such as oil industry and banking.

Foreign companies engaged in oil and gas production and processing are taxed at about 55% of their operating revenue. The rate is approximate as the tax amount is determined by the specific terms of concession agreements (which are confidential) made with the government authorities. The financial terms of such agreements generally supersede the provisions of tax decrees of the respective emirates, which is stated in each agreement individually. This tax regime usually includes the payment of royalties (12 – 20%) and corporate tax. The total tax burden can reach 85%.

Branches of foreign banks in some emirates are also subject to corporate tax. In the emirates of Abu Dhabi, Dubai, Fujairah and Sharjah, foreign banks pay 20% tax on operating profits.

Second, a federal corporate tax was introduced in the UAE on 1 June 2023, which applies to:

• companies and other legal entities registered in the UAE;
• individuals conducting business activities in the UAE;
• foreign legal entities effectively managed from the UAE.

Taxpayers whose financial year coincides with the calendar year will have their first corporate tax period starting on 1 January 2024, and are required to register for corporate tax before 30 September 2025 (consequently, the first corporate tax return must be filed between 1 January 2025 and 30 September 2025).

Companies extracting natural resources are exempt from federal tax, as they are already taxed in their respective emirates (at higher rates).

The federal corporate tax rate is 9%. Mainland companies with taxable income below the threshold of AED 375 000 (~ USD 100 000) will continue to enjoy 0% tax rate. There is also tax relief for small businesses.

The tax situation is more complex in the case of companies registered in UAE free zones. Previously, these companies were generally exempt from corporate tax for a certain period, i.e. they were granted tax holidays for a period of 15 to 50 years (depending on the free zone); there was also a practice of extending such tax holidays.

Property transfer tax is levied on the direct or indirect transfer of UAE real estate. The tax rate depends on the emirate (for example, Dubai has a 4% rate).

[1] Ajman Free Zone Offshore Companies Regulations, 2014.

[2] See, for example, sec. 60 of Jebel Ali Free Zone Offshore Companies Regulations, 2018.

[3] The table shows the free zones where we help our clients to register UAE companies.

[4] The fees are valid as at October 2023.