Is Bookkeeping Mandatory in UAE Free Zones?

The UAE Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Busi-nesses, published in December 2022, has left many definitions to be clarified through subse-quent Ministerial Decisions. Since then, various decisions and decrees have been released, creating a patchwork of corporate tax regulations in the UAE. This has resulted in consider-able confusion among companies, accountants, auditors, and even free zone management.

The categories of taxable persons required to prepare and maintain audited financial state-ments have been explicitly defined by the Ministerial Decision No. 82 of 2023.

The obligation to maintain financial records (bookkeeping) is regulated in the Federal De-cree-Law no. (32) of 2021 On Commercial Companies, with important details.

However, the obligation for free zone companies to maintain their financial records is ad-dressed indirectly, with the answers inferred from practical necessities.

UAE Free Zone Companies: Requirements for Preparing and Maintaining Audited Financial Statements

According to the “Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Busi-nesses,” the following categories of taxable persons are obligated to prepare and maintain audited financial statements:

1. Taxable persons with revenue exceeding AED 50,000,000 (fifty million UAE dir-hams) during the relevant tax period.
2. Qualifying Free Zone Persons
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It is important to note that the first provision applies to both free zone and mainland compa-nies, as the Ministerial Decision does not differentiate between these categories and, there-fore, does not exclude free zone companies.

In addition to these provisions, many free zones require all companies registered within them to submit audited financial statements, either by a specific deadline or when renewing their business license. As of September 2024, these free zones include (non-exhaustive list):

• DAFZA (Dubai Airport Free Zone Authority),
• DSO (Dubai Silicon Oasis),
• DWC (Dubai South Free Zone),
• IFZA (International Free Zone Authority),
• JAFZA (Jebel Ali Free Zone Authority),
• MFZ (Meydan Free Zone),
• RAKEZ (Ras Al Khaimah Economic Zone),
• SAIF (Sharjah International Airport Free Zone),
• And all free zones overseen by the Dubai Development Authority.

The Federal Decree-Law No. (32) of 2021 on Commercial Companies mandates the mainte-nance of “accounting registers” (bookkeeping) for all companies (Article 26). However, Ar-ticle 5 provides an exemption for free zone companies, but only if the laws or regulations of the respective free zone specifically include a provision allowing for this exemption.
To date, no free zone has incorporated an exemption from maintaining accounting registers in its laws or regulations, as per our knowledge.
We recommend that all concerned parties contact their respective free zone authorities for clarification on this matter.

Is Bookkeeping Mandatory in UAE Free Zones? Yes, and Here’s Why:

Despite the exemption from maintaining accounting registers mentioned previously, there are several compelling reasons why all free zone companies should keep their accounts in order:

• UAE Corporate Tax Law generally exempts the first AED 375,000 of profit from any tax.
Without properly maintained accounts, a company cannot accurately benefit from this exemption.

• Ministerial Decision No. 73 of 2023 grants a temporary tax exemption until the end of 2026 for companies with annual revenue below AED 3 million.

To take advantage of this exemption, companies must have their financial records in good order.

• Free zone companies that do not qualify for the 0% Corporate Tax Exemption are subject to a 9% corporate tax on their taxable profits.
Without proper bookkeeping, neither the company nor the UAE Federal Tax Au-thority would be able to accurately calculate the corporate tax due.

These considerations underscore the importance of maintaining accurate accounting regis-ters for all free zone companies, providing a clear and definite answer to the question, ‘Is Bookkeeping Mandatory in UAE Free Zones?’

Please feel encouraged to contact us for more information or assistance, through our website https://viiconconsulting.com

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