Business setup in Dubai and UAE free zones requires proper handling of business finances. There are tax rules and international reporting standards that have to be followed, which can be intimidating for business owners unfamiliar with the country’s laws. Working with a UAE free zone accounting expert can simplify this process and allow owners to focus on their business operations.
Why Accounting Matters for UAE Free Zone Companies in 2025
- Accounting is more than record-keeping, it’s how you keep your free zone business compliant.
- Free zones used to be known for 100% foreign ownership, a simpler business setup process, and no tax obligations.
- Now, free zone company owners are expected to keep detailed records of all their financial transactions.
- You have to keep your finances organized if you want to qualify for the 0% corporate tax rate.
- Banks, investors, stakeholders, and government officials will all look at your financial records to see how stable your business is.
- Working with a local accounting expert can help keep your company compliant.
Understanding UAE Free Zone Accounting
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- If you have a business in a free zone, you need to follow certain accounting rules. In the UAE, it’s the International Financial Reporting Standards (IFRS).
- In most free zones, you have to send in your financial statements once a year. These statements show how much money your business made, what it spent, what it owns, and how cash moves in and out.
- This helps the free zone authority see how your business is performing and if you meet their tax rules.
- What’s different about free zone accounting is that it combines UAE laws with your specific zone’s rules.
- Many companies use accounting software to make the process faster and more accurate.
- Having clean records makes your business look more trustworthy and makes tax season less stressful.
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VAT Compliance for UAE Free Zone Companies
- The most important thing is knowing how free zones are treated when it comes to VAT in UAE. There are two types of free zones: Designated Free Zones and Non-Designated Free Zones.
- Designated Zones are treated as located outside the UAE for VAT purposes. This means if you move physical goods within these zones, the transaction might be VAT-free.
- Non-Designated Zones are treated as being inside the UAE and must charge VAT like any mainland business.
- Even in Designated Zones, most business activities are still taxed at 5%, so it’s important to know the difference.
- If your business makes over AED 375,000 in taxable sales per year, you must register for VAT.
- You can also voluntarily register if your revenue is above AED 187,500. Once you’re registered, you need to submit VAT returns every quarter using the FTA’s EmaraTax portal.
- Common mistakes include charging VAT when you shouldn’t, forgetting to file returns on time, and not keeping the right records.
- These mistakes can lead to AED 10,000 penalties, so they’re important to avoid.
- The FTA also requires you to keep all your invoices and receipts for at least five years.
Is There Corporate Tax for Free Zone Companies in UAE? (2025 Update)
- Starting in 2023, businesses with taxable profits over AED 375,000 have to pay a 9% corporate tax in the UAE.
- However, free zone companies can still get a 0% tax rate on certain income if they qualify as a “Qualifying Free Zone Person” (QFZP).
- This usually applies to income from specific activities like fund management, logistics, treasury and financing, manufacturing, and wealth and investment management.
What you need to do to get the 0% tax rate:
- Adequate presence: Your company must show it has a real presence in the free zone. This means having qualified employees and expenses related to the income you make. This follows the Economic Substance Regulations (ESR).
- Income segregation: You need to clearly separate your Qualifying Income (which gets 0% tax) from Non-Qualifying Income (which is taxed at 9%.
- De Minimis Rule: Your Non-Qualifying Income can’t be more than 5% of your total revenue or AED 5 million per year, whichever amount is lesser. If you go over, you could lose your 0% tax status for up to five years.
- Transfer pricing: Any transactions with related companies have to follow fair market pricing rules (the Arm’s Length Principle) and have the right documents to prove it.
What are the Best Practices for Free Zone Bookkeeping in UAE?
- Do your bookkeeping every month or every few months to stay on top of your records and invoices.
- Check your bank statements regularly and remember to track small cash expenses.
- Stay on top of your VAT entries, as missing some can lead to incorrect tax calculations and VAT penalties.
- If you get audited, you will be required to show all your financial records from the past five to seven years.
- A&A Associate provides expert bookkeeping services for free zone companies in the UAE.
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What are the UAE Free Zone Audit and Reporting Requirements?
- If you run a business in a UAE free zone, getting audited is something you can’t skip.
- Most free zones require you to submit audited financial statements each year to renew your trade license.
- If your company wants to keep the 0% corporate tax rate as a Qualifying Free Zone Person (QFZP), an audit is also mandatory.
- In most cases, you need to submit your audit within 90 days after your financial year ends.
- It is also important to work with an approved audit firm. If your report is prepared by someone who is not officially recognized, the free zone may reject it.
UAE Free Zone Accounting Rules
Category | Law | Details |
Reporting standards | International Financial Reporting Standards (IFRS) |
|
Audit | Mandatory annual audit |
|
Corporate Tax | 9% since 2023 |
|
VAT | 5% since 2018 |
|
Record-keeping | Up to five years |
|
Accounting Software & Automation for UAE Free Zone Companies
Most free zone businesses use cloud-based accounting software to manage their finances. Platforms like Zoho Books, Xero, Quickbooks, Oracle, and Wave are popular choices.
Using cloud accounting gives you benefits like:
- Checking your numbers anytime and from anywhere
- Automatic report updates every time you make a transaction
- Quicker bank reconciliations with fewer errors
A Free Zone Tax Compliance Checklist for UAE Businesses
- Make sure your company is registered with the FTA. This is now mandatory for all free zone businesses.
- If your taxable sales are more than AED 375,000 a year, you have to register for VAT and file your returns every quarter using the FTA portal.
- Use proper accounting tools to clearly separate qualifying income (eligible for 0% tax) from non-qualifying income (taxed at 9%). This is important to meet the de minimis rule.
- Have adequate proof that your business runs its operations inside the free zone.
- All companies aiming for the 0% corporate tax rate have to submit audited financial statements every year.
- If you work with related companies, keep records that show all deals were made at fair market value.
- Hold on to all financial documents and reports for at least five years.
Get Expert Accounting Services From A&A Associate
A&A Associate is the UAE’s largest business setup advisory. Apart from end-to-end business setup support, we also house expert accountants and auditors with decades of experience managing finances and conducting internal and external audits.
