For a long time, there was a rumor that there were no taxes in Dubai. Consequently, there would then be no accounting obligation. But since 2024 you have to pay corporate tax in the United Arab Emirates (UAE), thus also in Dubai. And since no other laws have been introduced to clarify how to determine the taxable profits, it should be clear to every entrepreneur in Dubai that there must have been an accounting obligation in Dubai since always. It is therefore time for us to take a closer look here.

1st Accounting Requirement in Dubai – Introduction

In Germany, we know the accounting obligation for companies in connection with two important reasons. On the one hand, books are kept because the Commercial Code is intended to create an instrument that allows both shareholders of an entrepreneurial company and potential creditors to get an idea of the financial situation of the company. In particular, creditor protection is in the foreground. In the Anglo-Saxon region, an accounting obligation is also established. In contrast to our German legal system, however, the focus here is primarily on protecting potential investors. Due to such differences, it has been decided in a globally increasingly closely networked business environment to develop internationally recognized accounting standards. The result is the continuously developed International Financial Reporting Standards, IFRS for short.

Since bookkeeping fulfils an important function, especially where the tax-relevant profit determination is concerned, it should hardly be surprising that such a duty exists in practically every state. So what about the accounting obligation in Dubai?

Accounting obligation in Dubai – just a fairy tale?

For a long time, the UAE did not levy taxes on corporate profits. And if you do not have to keep books for tax purposes, then the most important reason for bookkeeping for many entrepreneurs actually disappears. From this, many entrepreneurs concluded that there was no need to keep books for their Dubai LLC, for example. After all, there was no other need for such columns of figures or a regulation that provided for them to publish their annual accounts. Over time, this developed into the logically comprehensible misconception that there is no accounting obligation in Dubai.

But at the latest since 2024 the corporate tax has become the subject of the tax regime in the UAE, you had to look again more closely on the entrepreneur side, how the profit determination should be carried out in the future and which documents with the corporate tax return must be submitted. And lo and behold: of course there is an accounting obligation in Dubai and elsewhere in the UAE!

3. Accounting obligation in Dubai: Problem case opening balance

This surprising finding for some foreign entrepreneurs may have frightening consequences. Because if you have been doing business in Dubai for many years and have never kept books so far, but from 2024 onwards you have to create some in order to properly carry out the profit determination as part of the corporate tax return, two fundamental questions arise: what does the opening balance sheet look like and how can you reconstruct its further development into the present?

Well, that’s a rare situation where we can’t give an easy answer. At least we do not have sufficient expertise in this regard, because this is the law of another state. As a German tax consultancy firm with a focus on international tax law, we also regularly look beyond our national borders in tax law matters, but only as far as German tax law requires. Here, however, the legal system of the UAE is decisive. Accordingly, advice on such issues is needed on the basis of the regulations there.

Important rules for accounting in Dubai

Let’s now take a brief look at the most important provisions regarding accounting requirements in Dubai and the UAE.

First of all, there are general regulations regarding the period for the storage of commercial documents. Books and documents must be kept for at least five years after the end of a financial year. For this purpose, the place of business is designated as the place of storage. A third general rule requires that accounting should be carried out in accordance with internationally accepted accounting standards and procedures. However, this is only a recommendation. In any case, the use of the IFRS procedure is an obvious choice. Furthermore, a balance sheet and a profit and loss account are mandatory. For corporations, the obligation to audit also applies. Thus, an annual audit takes place. The financial year is freely selectable. However, the first financial year may not exceed 18 and must be at least six months long.

Additional rules also apply to a public joint stock company corresponding to a German listed public limited company. Here, for example, an annual publication of the balance sheets is also required. This is due to the fact that the holdings in these companies are traded as shares on stock exchanges and therefore a public interest in the financial and economic situation of the company is in the foreground.

5th Accounting Requirement in Dubai – Conclusion

We were able to show that the accounting obligation in Dubai is real and that any denial of this fact belongs in the realm of legends. With the introduction of corporate tax, this has become an important aspect of their administration for entrepreneurs in Dubai and the rest of the United Arab Emirates. Finally, they are relevant for determining taxable profit. In this respect, it is important that you either familiarize yourself fundamentally with the regulations of the Federal Decree-Law no. (32) of 2021 on Commercial Companies or use professional help in the future.

What, on the other hand, is still completely open, concerns detailed questions about determining the taxable profit. For example, it is necessary to clarify which restrictions should regulate, for example, the amount of managing director salaries, which can be deducted as operating expenses. In Germany, for example, this depends on the respective industry.

Therefore, it will be exciting to see what solutions arise in the UAE in the collection of corporate tax for the challenges we are all too familiar with in this context. Can we perhaps adopt some of their solutions in the future? After all, in a completely new view, innovative creative ideas can arise because they are unaffected by previous thinking patterns. Or is it the other way around in the end and you are oriented in the UAE to regulations that exist in Germany or in other Western tax regimes? Because one thing is probably clear: a state that recruits companies as well as entrepreneurs from the large industrial nations is well advised to adapt to their tax circumstances. This applies regardless of whether you have concluded double taxation agreements with the UAE.

In any case, the newly awakened importance of accounting in Dubai will also bring some surprises. We will follow them with curiosity.