Is Audit Mandatory for Free Zone Companies?

In the UAE, mandatory audit/audits requirements can vary based on factors such as the type of company, its legal structure, its size, and its business activities. To comply with the various laws of the UAE it is mandatory to get the accounts audited and have the Audited financials. Here are some key points to consider:

Audit requirement for Mainland companies/entities:

UAE Commercial Companies Law:

As per Article 27 of Federal Decree-Law no. (32) of 2021 or Commercial Companies Law, every Joint Stock Company (also shall comply with Articles 245 and 238) or Limited Liability Company (also shall comply with Article 102) shall have one or more auditors to audit the accounts of the Company on a yearly basis.

The remaining form of companies may appoint an auditor in accordance with the provisions of the Decree-Law.

UAE Corporate Tax:

By Ministerial Decision 82/2023 dated 10 April 2023, for the purposes of Clause 2 of Article 54 of the Corporate Tax Law, the following categories of Taxable Persons shall prepare and maintain audited financial statements:

A Taxable Person deriving Revenue exceeding AED 50,000,000 (fifty million United Arab Emirates dirhams) during the relevant Tax Period.
A Qualifying Free Zone Person.

We recommend maintaining the financial statements, even if the audit is not applicable. Financial statements will act as a base for tax return filing and audit by the FTA. The transparency which the tax authority expects about the arrival of book profit can be made clear through a proper audit.

Usually, the listed companies and other public interest entities, such as banks and insurance companies, are required by law to have their financial statements audited by independent auditors.

Audit requirement for Free Zone companies/ entities:

Requirement of the Free Zone Authority for renewal of the license:

Companies registered with various Free Zones are required to submit their audited financial statements to the free zone authority. This is because some of the free zone authorities will ask to present the audited financial statements at the time of the company’s trade license renewal. Companies that ignore this requirement often incur penalties or face consequences such as non-renewal of trade licenses. To avoid being penalized, the companies are advised to maintain their books of accounts properly and get them audited without fail.

Mandatory audit for a Free Zone Company under Corporate Tax Law:

Further for any free zone company to obtain the status of Qualified Free Zone Person to be subject to zero corporate tax on the profits of the free zone company, getting the books of accounts audited is one of the mandatory requirements.

When to submit the Audited Financial Statements?

Following are the major Free Zone authorities and the various due dates for submission of Audited financials with the respective Free Zone authorities:

S. No.	Free Zone Authority/ies	Audited Financial Statements shall be submitted within
1	i. Jebel Ali Free Zone (JAFZA), ii. Dubai South Free Zone (DWC) and iii. Sharjah International Airport Free Zone (SAIF)	90 days from the end of the respective financial year
2	Dubai Silicon Oasis (DSO)	4 months from the end of the respective financial year
3	i. Ras Al Khaimah Economic Zone (RAKEZ) and ii. Dubai Development Authority (DDA)	6 months from the end of the respective financial year
4	Dubai Multi Commodity Center (DMCC)	180 days from the end of the respective financial year

Note: These dates may vary based on the decision of the respective free zone authority. It is strongly recommended to reach out to the free zone authority and re-confirm the final date before taking any decision.

Disclaimer: This material and the information contained herein, prepared by SPECTRUM AUDITING, are intended for clients and professionals to provide updates and are not an exhaustive treatment of the subject. We are not, by means of this material, rendering any professional advice or services. It should not be solely relied upon as the basis for any decision which may affect you or your business. This update provides certain general information as well as specific information regarding SPECTRUM AUDITING. This update should not be regarded as comprehensive or sufficient for the purposes of any decision-making.

Why Spectrum?

Spectrum Auditing is a duly registered auditor authorized by the Ministry of Economy in the UAE. Furthermore, Spectrum holds accredited auditor status within multiple free zones and enjoys recognition as an approved auditor by prominent UAE banks. This solidifies Spectrum Auditing’s reputable standing in the industry.

We specialize in conducting audits adhering to International Standards on Auditing (ISA), International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Our Free Zone entity’s audit protocols align with guidelines established by diverse Free Zone Authorities.

Call us today for any kind of assistance at +971 4 2699329 or email [email protected] to get all your queries addressed. Spectrum is your partner in your success.