Are you a UAE free zone company wondering about your external audit obligations?

This blog will outline the essential guidelines for external audits in UAE free zones. Let’s have a quick review of UAE free zones.

There are over 40 multidisciplinary free zones in UAE providing 100% ownership of companies to expatriates and foreign investors, regulated by free zone authorities. These zones facilitate the businesses by offering highly efficient infrastructure and unique services to ensure smooth workflow. Up to 100% exemption from income and corporate tax and custom duties have made UAE free zone ideal for businesses in UAE.

Is Audit Mandatory for UAE Free Zones?

However, operating in a free zone comes with certain responsibilities, including compliance with regulations established by free zone authorities. Given the exceptional benefits provided by UAE free zones, there is often a misconception regarding auditory obligations. Companies registered with UAE free zones are required to submit financial statements and reports to free zone authorities, audited by only approved list of auditors or audit firms. 

The submission of these audited financial reports is important:

For the renewal of the company’s trade license.

For any free zone company to avail complete exemption from corporate tax on the profits

Timeline for Submission of Audited Financial Statements

The deadline to submit audited financial statements may vary with respect to regulations set by the relative free zone authority. Some free zone authorities require companies to submit audited financial statements within 90 days of the end of the financial year and others may require the submission within 6 months of the end of financial year. Companies in free zones are allowed to choose their own financial year as per their requirement ensuring that it commences from the date of incorporation and must not be less than 6 months nor more than 18 months.

Audit Requirements for Company’s Operating in UAE Free Zones

Companies are required to keep their books of accounts at the registered office, or any equivalent place as agreed by the company’s Board of directors. Approved appointed auditors in UAE free zones must be provided access to financial records including Bank Statements, Independent balance confirmations from banks, customers, suppliers, and related parties, Credit/ debit confirmation for all financial transactions, Copies of bills and invoices, Memorandum of Association (MOA), Articles of Association (AOA), Latest Trade License, Registration Details for VAT and Excise Tax (If Applicable) including returns of the full year, Books of Accounts or any other detail as may be required.

Consequences in Case of Non-Compliance

Companies failing to submit audited financial reports are exposed to the risk of penalties which may vary from 2500 AED to 5000 AED based on the specific free zone and the extent of non-compliance. In case of failure to submit the required audit statements within specified timeframe for UAE Free Zones can result in suspension or cancellation of company’s trade license in extreme scenarios.

Conclusion 

Operating business in UAE freezone is a strategic advantage for business. To ensure smooth business operations in UAE free zones it is crucial to comply with regulations established by free zone authorities of UAE and conduct audit only from approved auditors. SS&Co. is an approved audit firm in free zone UAE which provides audit as per compliance and regulations. Book your consultation now to avail hassle-free audit services!