The introduction of company taxes in the UAE, the regulatory requirements applicable to commercial companies in Dubai and other emirates, as well as the relatively stringent rules imposed by a number of UAE free zones have created a regulatory environment in which audited financial statements have become an essential aspect of the smooth operation of companies in the UAE. It is important to note, however, that the obligation to have financial statements audited may arise under several independent regulatory frameworks, each operating separately from the others.
- Audit obligations arise independently under commercial companies law, federal corporate tax law and free zone rules, so exemptions under one framework never guarantee exemption under another.
- For tax periods from 2025, audited financial statements are compulsory for all tax groups, Qualifying Free Zone Persons and separate taxpayers with revenue above AED 50 million.
- Free zone audit rules differ materially; some, like DMCC and JAFZA, require audits regardless of revenue, while others apply nuanced thresholds for turnover, shareholders or staff.
- Dormant or loss‑making companies are generally still required to maintain accounts and undergo audits whenever thresholds or status‑based obligations, such as QFZP, apply.
Why Do UAE Companies Need to Prepare Financial Statements?
Following the company formation in the UAE, one of the key obligations for a business is to maintain proper accounting records in the UAE, which form the basis for the subsequent preparation of financial statements.
Financial statements perform the following main functions:
- demonstrate compliance with the requirements of UAE corporate legislation;
- demonstrate compliance with the rules applicable in the relevant UAE free zone; and
- provide the basis for calculating corporate tax.
The last of these functions often gives rise to common mistakes when taxpayers prepare their corporate tax returns and calculate their tax liability. Accounting profit is indeed taken as the starting point. However, it needs to be adjusted since certain expenses that reduce accounting profit are not deductible for corporate tax purposes and must therefore be added back to the tax base. In addition, any adjustments required under the UAE transfer pricing rules must also be reflected in the financial statements.
Financial Reporting Standards in the UAE
When maintaining accounting records and preparing financial statements, UAE companies must apply the prescribed standards. The International Financial Reporting Standards (IFRS) is the default standard for all companies. However, depending on a company’s annual revenue, the following exceptions apply:
| Annual Revenue | Applicable Reporting Standard |
|---|---|
|
up to AED 3 million |
The company may use either the cash basis accounting (i.e. recognising income and expenses when cash is received or paid) or the accrual method. |
|
AED 3 million to AED 50 million |
The company may apply the IFRS for SMEs. However, this is optional, and the company may instead prepare its financial statements in accordance with full IFRS. |
|
more than AED 50 million |
The company is required to apply full IFRS. In addition, its financial statements become subject to a mandatory audit (see below for further details). |
What Is an Audit and When Is It Mandatory?
An audit is an independent examination of a company’s financial statements, resulting in the issuance of an auditor’s report. The auditor has to confirm that the information presented in the financial statements is accurate and reliable.
In the UAE, statutory audits may be conducted only by audit firms licensed by the UAE Ministry of Economy. Where an audit is carried out in respect of a company established in a particular free zone, the audit firm must also be approved by the relevant free zone authority.
The obligation to have an audit for UAE companies stems from several legal sources and arises at different levels, each of which has independent significance. Accordingly, the need to prepare audited financial statements may arise from:
- the corporate legislation, in particular Federal Decree-Law No. 32 of 2021 on Commercial Companies;
- tax law requirements applicable to certain categories of taxpayers;
- requirements of specific free zones where the company is registered.
As a result, the absence of an audit obligation under one regulatory framework does not mean that no audit is required. For instance, a company that is not subject to audit under the tax legislation may still be required to undergo an audit under the rules of its free zone. For this reason, the existence of an audit requirement needs to be assessed under all three regulatory frameworks. These are examined in more detail below.
Audit under Corporate Legislation
The Commercial Companies Law applies to UAE mainland companies and requires a mandatory audit for:
- limited liability companies (LLCs), and
- joint stock companies.
This requirement applies regardless of the amount of the company’s revenue.
The corporate rules also set out the deadlines for preparing and filing financial statements in the UAE for these types of companies.
Audit for Corporate Tax Purposes
The obligation to undergo an audit for corporate tax purposes is established by Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, together with the decisions of the UAE Minister of Finance. In particular, for tax periods beginning on or after 1 January 2025, Ministerial Decision No. 84 of 2025 applies.
Under this decision, the following categories of taxpayers are required to prepare and retain audited financial statements:
- taxpayers that are not part of a tax group whose revenue exceeds AED 50 million;
- Qualifying Free Zone Persons (regardless of their revenue); and
- all tax groups.
The particular details for each of these categories are discussed below.
Specific Audit Rules for Separate Taxpayers and Tax Groups
For taxpayers that are not members of a tax group, the revenue threshold is determined for the relevant tax period on the basis of financial statements prepared in accordance with IFRS.
For non-residents of the UAE, the AED 50 million threshold is calculated under special rules. Only the portion of revenue attributable to a permanent establishment or a nexus in the UAE is taken into account. A nexus may arise, for example, where a non-resident derives income in any form from immovable property located in the UAE or in other circumstances specified in Cabinet Resolution No. (35) of 2025.
Tax groups are required to prepare special purpose audited financial statements in the form prescribed by the Federal Tax Authority (FTA). In this case, the revenue of either the tax group as a whole or its individual members is irrelevant.
Audit Requirements for Qualifying Free Zone Persons
Companies that qualify as Qualifying Free Zone Persons (QFZPs) may benefit from the 0% corporate tax rate. To maintain this status, they must perform a number of duties, including the duty to prepare audited financial statements annually, regardless of their annual revenue.
In this context, the audit confirms the company’s entitlement to the preferential tax treatment. Failure to provide audited financial statements results in the loss of QFZP status and, consequently, the application of the standard 9% corporate tax rate to the company’s taxable income.
It is important to note that the audit requirement for QFZPs is imposed under the UAE’s federal corporate tax legislation and applies to all companies seeking to qualify for QFZP status, regardless of the free zone in which they are established. In addition, each free zone may impose its own audit requirement in its corporate legislation.
Audit under Free Zone Corporate Legislation
As each UAE free zone has its own regulatory framework, including its own rules on statutory audits, the audit requirements may vary significantly from one free zone to another.
By way of illustration, the table below summarises the audit requirements applicable in several most popular free zones of the UAE:
| Free Zone | Audit Requirements |
|---|---|
|
DMCC Free Zone, Dubai |
An audit is mandatory for all companies, regardless of their annual revenue. |
|
DIFC Free Zone, Dubai |
As a general rule, all companies are required to have their financial statements audited. However, private companies are exempt from this requirement if both of the following conditions are met:
|
|
JAFZA Free Zone, Dubai |
An audit is mandatory for all companies incorporated as FZEs or FZCOs, regardless of their annual revenue. |
|
IFZA Free Zone, Dubai |
Audited financial statements must be submitted if either of the following conditions is met:
|
Practical Application of Free Zone Audit Requirements
Particular attention should be paid to situations where a free zone’s corporate regulations require a company to undergo an audit, while the free zone authority indicates that audited financial statements are not required.
Under such circumstances, it is generally advisable not to dismiss the audit requirement for the following reasons:
- if the need arises to liquidate a UAE company, including a free zone company, the free zone authority may request audited financial statements for previous periods;
- as compliance procedures are becoming more stringent, the free zone’s approach may change, and the audit requirement may come to be enforced more strictly. In such cases, a comparison with prior-period data may sometimes be required. So, if no financial statements were prepared or audited in those periods, the process of reconstructing and verifying the data can add significantly to the scope and cost of the first audit.
Failure to comply with a free zone’s audit requirements may result in financial penalties and, in serious cases, the refusal to renew the company’s licence.
As both the applicable requirements and the way they are enforced vary from one UAE free zone to another, it is advisable to determine the company’s specific audit obligations with the assistance of UAE business consultants who regularly advise on company formation and ongoing corporate services in the relevant free zone and are familiar with its regulatory framework and administrative practice.
Financial Reporting and Audit Requirements for Dormant Companies
In some cases, following the setting up a business in Dubai or other UAE emirates, a company nevertheless does not carry out any activities, generates no profit, or operates at a loss. Depending on the circumstances, the solution may be to liquidate the company or, in those jurisdictions where the option is available, to temporarily suspend a UAE company.
However, the mere fact of having no activity or profit does not release a company from a number of obligations, including the obligation to maintain accounting records and prepare financial statements, which may show a profit, a loss, or no financial activity at all.
An audit also remains mandatory in cases where the obligation to have one does not depend on specific financial thresholds.
Conclusion
In a number of circumstances, an audit forms part of the ordinary course of business for companies in Dubai and the UAE. Whether a company is required to have its financial statements audited should be assessed by reference to the following sources:
- requirements of the UAE federal corporate legislation;
- provisions of the UAE corporate tax legislation; and
- rules and administrative practice of the free zone in which the company is incorporated.
It is also important to bear in mind that the mere fact that a company is inactive or does not generate a profit does not necessarily exempt it from the requirement to prepare audited financial statements.
Tags: Accounting and Audit, UAE
