On 25 March 2025, the new Ministerial Decision No. 84 of 2025 concerning audited financial statements was published in accordance with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Law”).
This new Decision will apply to tax periods starting on or after 1 January 2025. It amends and replaces the previous Decision No. 82 of 2023, which will still be in effect for tax periods beginning before 1 January 2025.
Mandatory audit of financial statements in the UAE
Article 54(2) of the Law empowers the Minister of Finance to define the categories of taxpayers required to prepare audited financial statements. According to Decision No. 84, these categories include:
- A taxable person (other than a tax group) whose revenue exceeds 50 million AED during the relevant tax period (approximately 13.6 million USD).
- A qualifying free zone person.
The new Decision does not alter the categories of taxpayers obligated to conduct audits of their financial statements, nor does it modify the revenue threshold that triggers mandatory audits. However, it does provide several clarifications.
The revenue threshold for non-residents
Decision No. 84 includes a specific clause regarding revenue calculation for UAE non-residents. When assessing whether a non-resident’s revenue surpasses the 50 million AED threshold, only the following items should be considered:
- Revenue generated by the non-resident through permanent establishments located in the UAE and
- Revenue received by the non-resident through a nexus in the UAE.
Financial reporting of tax groups
The Decision specifies that tax groups will prepare and maintain audited special-purpose financial statements in accordance with the form, procedures and rules specified by the UAE Federal Tax Authority.
The Law defines a “tax group” as two or more taxable persons treated as a single taxable person. A tax group can be formed by a UAE-resident parent company and its subsidiaries that comply with the conditions set in article 40 of the Law. The parent company must submit a relevant application to the FTA to be recognised as a group.
The tax group prepares consolidated financial statements that aggregate the financial results, assets, and liabilities of each subsidiary, excluding transactions between the parent company and each subsidiary of the group (articles 42(1) and 42(11) of the Law, article 3 of Ministerial Decision No. 114 of 2023).
Additional requirements for qualifying free zone persons
The Decision No. 83 announces that qualifying UAE free zone companies engaged in the distribution of goods or materials in or from a designated zone will have to comply with “any additional procedures prescribed by the Authority.”
A “qualifying free zone person” refers to a free zone company that generates income from “qualifying activities”, has “adequate substance” in the UAE and complies with other specific requirements. These requirements include preparing audited financial statements as outlined in article 5 of Ministerial Decision No. 265 of 2023. Qualifying free zone persons may benefit from a zero corporate tax rate in the UAE.
Designated zones are territories within the UAE treated for VAT purposes as territories outside the UAE. Some of the UAE free zones are also designated zones in terms of VAT.
The “distribution of goods or materials in or from a designated zone” is an activity that generates qualifying income for a free zone company. It implies buying and selling goods, materials, and spare parts, including their importation, storage, inventory management, transportation, and exportation to a customer for resale or processing for further resale, provided that such activities are conducted through a designated zone (article 2(3) of the Ministerial Decision No. 265 of 2023).
It follows from Decision No. 84 that free zone companies involved in the distribution of goods through designated zones will face some additional formalities, the details of which are not yet known.
General rules on financial statements in the UAE
Accounting for UAE companies and preparing financial statements are necessary to determine taxable profits for corporate tax purposes. The corporate tax in the UAE is effective from 1 June 2023 for all mainland and free zone companies. Taxable profit is the company’s accounting profit adjusted for tax purposes (article 20 of the Law).
The UAE Ministry of Finance requires taxpayers to apply International Financial Reporting Standards (IFRS). If the taxpayer’s income does not exceed AED 50 million, the taxpayer may use the IFRS for small and medium-sized entities (article 4 of Ministerial Decision No. 114 of 2023).
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