Feedback

What is the Meaning of Accounting Standards in the Context of Free Zone Corporate Tax Rules in the United Arab Emirates (UAE)?

The introduction of corporate tax in the United Arab Emirates (UAE) in June 2023 brought new regulations for Free Zone Persons (companies operating within designated areas with tax benefits). One such regulation is the requirement to comply with specific Accounting Standards.

Free Zone Corporate Tax and Accounting Standards

Accounting Standards define how businesses should record and report their financial activities. Following these standards ensures transparency and consistency in financial reporting, which is crucial for tax purposes.

Accounting Standards for UAE Free Zone Corporate Tax

The UAE mandates Free Zone Persons to comply with the Accounting Standards specified in Ministerial Decision No. 114 of 2023. This decision refers to the International Financial Reporting Standards (IFRS).

There's a simplification available though. Companies with revenue below AED 50 million (approximately USD 13.6 million) in a tax period can choose to follow the IFRS for SMEs (Small and Medium-sized Entities). This offers a less complex version of the full IFRS.

Importance of Accounting Standards for Free Zone Persons

Following the mandated Accounting Standards ensures Free Zone Persons comply with tax regulations. Accurate financial records prepared under these standards are essential for:

• Calculating Qualifying Income (income subject to the reduced 0% tax rate)
• Preparing tax returns
• Demonstrating adequate substance in the Free Zone (having a genuine business presence)

Conclusion