Using IFRS for SMEs in the UAE: What You Need to Know

With the introduction of Corporate Tax in the UAE, the choice of accounting standard has gained new significance. The Federal Tax Authority (FTA) requires businesses to prepare financial statements using either full IFRS or IFRS for SMEs—depending on size and activity.

Who Can Use IFRS for SMEs?

Businesses with revenue of AED 50 million or less during the tax period are allowed to use IFRS for SMEs for their corporate tax reporting. This threshold is confirmed under Ministerial Decision No. 114 of 2023.

This option is available to most small and medium-sized entities, regardless of whether they’re mainland or Free Zone companies. However, public interest entities (such as listed companies or those regulated by certain authorities) must use full IFRS, regardless of size.

Why Consider IFRS for SMEs?

IFRS for SMEs is a simplified version of full IFRS, designed to reduce the reporting burden on smaller businesses. It involves:

• Fewer disclosures

• Simplified accounting treatment for certain items

• Lower compliance costs

For many SMEs, it offers a practical way to meet tax requirements while keeping financial reporting straightforward.

What About Free Zone Companies?

Free Zone businesses applying for the 0% corporate tax rate as Qualifying Free Zone Persons (QFZPs) must prepare audited financial statements. They can use IFRS for SMEs if they fall under the AED 50 million threshold, but they must still meet all other qualifying conditions—including substance requirements and the de minimis rule.

Key Points to Keep in Mind

• You must apply IFRS or IFRS for SMEs in full—selective use is not permitted.

• Cash-basis accounting may only be used by very small businesses (revenue under AED 3 million) and is not allowed for Free Zone entities.

• IFRS for SMEs is acceptable for tax purposes, but any tax-specific adjustments (e.g. related party pricing, exempt income) must still be made.

Need help selecting the right reporting framework or understanding how it impacts your tax filing? Contact Aston Vera for tailored support.