Audited Financial Statements Under the UAE Corporate Tax Regulations

Who Needs Audited Financial Statements in the UAE

The introduction of corporate tax in the UAE has significantly reshaped compliance requirements for businesses. One of the most important aspects of this change is the obligation for certain entities to prepare and maintain audited financial statements. From tax periods beginning on or after 1st January 2025, maintaining audited financial statements is mandatory for the following entities:

• Taxable Persons with revenue exceeding AED 50 million: A taxable person can be any company or natural person earning more than AED 50 million in revenue during a tax period, provided it is not part of a tax group. Such companies are required to maintain audited financial statements. For non-resident entities, only revenue linked to a Permanent Establishment or a nexus in the UAE is considered.
• Qualifying Free Zone Persons (QFZPs): A QFZP is a company established in a UAE Free Zone that meets all the conditions to be treated as a qualifying entity and get the benefit of 0% corporate tax rate on Qualifying Income earned. All QFZPs are required to maintain audited financial statements.
• Tax Groups (Special Purpose Financial Statements): A Tax Group is created when a parent company and its subsidiaries are treated as a single taxable unit under the Corporate Tax Law. These groups must prepare audited special-purpose financial statements in the form and manner specified by the FTA.

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Even before Tax Periods beginning on or after 1 January 2025, QFZPs and taxable persons with revenue above AED 50 million were required under the Corporate Tax Laws to maintain audited financial statements.

Accounting Standards for Audited Statements

Depending on the annual revenue and a few other factors, the following accounting standards should be observed while preparing audited financial statements:

• Cash Basis of Accounting (Revenue ≤ AED 3 million): Businesses with annual revenue of AED 3 million or less may use the cash basis of accounting. Unlike the accrual basis, this method records transactions only when cash is actually received or paid.
• IFRS for SMEs (Revenue ≤ AED 50 million): The International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs) provide a simplified version of IFRS, with reduced disclosure and reporting requirements. UAE businesses with annual revenue not exceeding AED 50 million may elect to apply IFRS for SMEs.
• IFRS (Default Standard): International Financial Reporting Standards (IFRS) form the global framework for preparing financial statements. IFRS requires income and expenses to be recorded when they are earned or incurred (accrual basis), not when cash is received or paid. Currently, about 87% of jurisdictions worldwide (148 of 169 countries) mandate IFRS for all or most domestic publicly accountable entities. In the UAE, IFRS is the default accounting standard for all other businesses.

It’s important to note that small businesses with revenue of AED 3 million or less in a Tax Period may elect for Small Business Relief (SBR) for Tax Periods up to 31 December 2026, provided their revenue did not exceed this threshold in any previous Tax Period starting on or after 1 June 2023. However, they are still required to maintain proper records to substantiate revenue levels and to meet all other conditions prescribed to confirm eligibility.

Why Audited Financial Statements Matter

Other than being a regulatory obligation for the entities mentioned above under the UAE’s Corporate Tax Law, audited financial statements also serve broader purposes for an organisation:

1. Accuracy of Tax Filings: Audits confirm that financial statements are free from material errors, misstatements, or fraud, ensuring the figures reported to the FTA are reliable.
2. Investor and Lender Confidence: Audited statements strengthen governance and build trust with investors, lenders, and regulators.
3. Preservation of Reliefs and Incentives: Properly prepared financial statements are essential to demonstrate eligibility for QFZP status, Transfer Pricing compliance, and Small Business Relief. In many cases, audits are also required under other regulatory frameworks beyond corporate tax.
4. International Alignment: Preparing statements under IFRS or IFRS for SMEs, as mandated by the UAE, makes financial statements consistent with globally recognised reporting standards.
5. Operational Insights: Audits often reveal inefficiencies, control weaknesses, and potential risks, giving management actionable information to improve internal processes.

Challenges Faced by Companies During Financial Statement Audits

1. Incomplete or Disorganised Records: Poorly maintained ledgers, bank reconciliations, and receivables/payables make it difficult to confirm a company’s financial position.
2. Gaps in IFRS or IFRS for SME Application: Misclassified transactions or missing disclosures often arise from uncertainty about which standard applies.
3. Weak or Unsupported Accounting Estimates: Areas such as impairment, provisioning, and revenue recognition require judgement. Without evidence, auditors may reject these estimates.
4. Missing or Incomplete Disclosures: Essential details such as loan terms, related party transactions, or contingent liabilities must be disclosed for statements to be complete.
5. Uncertainty About Audit Requirements: Businesses may be unsure if audits are needed, leading to delays or compliance risks.

How AKW Consultants Help

For businesses in the UAE, the requirement to maintain audited financial statements sits at the intersection of corporate tax law, financial reporting, and governance. AKW Consultants helps companies navigate this landscape by integrating accounting, audit, and tax compliance into a unified process. Our teams prepare and review financial statements under IFRS and IFRS for SMEs, align them with other corporate tax requirements, and ensure timely audits with licensed auditors. Beyond compliance, we support businesses in maintaining clean, reliable accounts, implementing cloud-based accounting platforms, and using financial data for stronger decision-making and long-term growth.