Determining the Need for an Audit of Your Company in the UAE
25.07.2024
To start, it is essential to determine whether your company in the UAE is required to undergo an audit. This primarily depends on the company's registration location—either in a Free Zone or on the Mainland.
Free Zone
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Revenue Threshold
The first criterion for determining the need for an audit is the company's revenue for the current reporting period. If revenue exceeds AED 50,000,000 (approximately USD 13.6 million), an audit is mandatory. Revenue is determined based on the annual financial statements.
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Application of Preferential Tax Rates
The second criterion involves the company's use of a preferential tax rate, where qualified income is taxed at 0%, and non-qualified income is taxed at 9%.
To apply this tax regime, a company must attain Qualifying Free Zone Person status, which requires meeting the following conditions:
- Adequate substance in the zone: This includes having a real office (evidenced by a lease agreement or property ownership documents for commercial premises), a sufficient number of officially employed staff (calculated based on company size), and communication means (a landline phone, website, and postal address for correspondence).
- Conducting qualified activities.
- Not utilizing the standard corporate tax rate.
- Complying with transfer pricing regulations.
If these criteria are met, qualified activities are taxed at 0%, provided that the share of non-qualified income does not exceed 5% of total company income (revenue + other income) or AED 5,000,000.
If a company wrongfully claims Qualifying Free Zone Person status (e.g., by not fulfilling the substance requirement), the tax authorities may retroactively impose a 9% tax. Therefore, special attention must be paid to the substance procedure, such as ensuring expenses for personnel, rent, and other obligations are actually paid from the company's bank account.
Regardless of revenue, an audit is mandatory for companies using the preferential tax regime, even if their annual revenue does not exceed AED 50,000,000.
When an Audit Is Not Required in a Free Zone
An audit is unnecessary if the company does not claim Qualifying Free Zone Person status and instead pays corporate tax at the standard rates:
- 0% on profits up to AED 375,000.
- 9% on profits exceeding AED 375,000.
In this scenario, any tax losses can be carried forward to future reporting periods.
In some cases, this approach is preferable, as it eliminates the need to pay for local auditing services and expenses related to substance confirmation.
Mainland
Similar to Free Zones, the main criterion for determining the need for an audit is the company's revenue for the current reporting period.
- If revenue exceeds AED 50,000,000 (USD 13.6 million), an audit is mandatory.
- If revenue is less than AED 50 million, an audit is not required.
Audit Requirements
Audits must be conducted by auditors officially accredited in the UAE as Tax Agents or Tax Agencies.
Our organization collaborates with local auditing firms in the UAE to jointly prepare audit reports. Acting on behalf of our clients, we provide professional clarifications and comments to local auditors during this collaboration. This approach ensures not only high-quality audit reports that meet established standards but also adds valuable professional adjustments, enhancing their informativeness and reliability for all stakeholders.
Auditor Selection Based on UAE Law
If UAE legislation does not require an audit for your company but an audit opinion is needed in Russia (e.g., for CFC reporting, counterparties, or banks), a Russian auditor may be engaged. If the financial statements are prepared under IFRS, a Russian auditor is authorized to issue an audit opinion in compliance with International Standards on Auditing (ISA).
