Transitioning Your Business to the IFRS Standards in the UAE | 2025 Compliance Guide

Transitioning Your Business to the IFRS Standards in the UAE: A Strategic Imperative for 2025 and Beyond

Introduction

I still remember the phone call from a client in Abu Dhabi last year. “Our accountant just told us our financial statements aren’t compliant for Corporate Tax,” he said, panic evident in his voice. “We’re facing potential penalties, and I don’t even understand what IFRS means for our business.”

He isn’t alone. Across the UAE, thousands of business owners are discovering that transitioning your business to the IFRS Standards in the UAE isn’t just an accounting exercise—it’s a legal requirement with real consequences. With Corporate Tax now in effect and new regulations rolling out, the landscape has fundamentally changed.

Whether you run a family-owned trading business in Deira, a tech startup in Dubai Internet City, or a manufacturing company in Abu Dhabi’s industrial zone, understanding this transition could save you from costly mistakes. Let me walk you through what you actually need to know, drawing from real experiences helping businesses like yours navigate this shift.

Why IFRS Compliance is Now Mandatory in the UAE

The Corporate Tax Connection

When the UAE introduced Corporate Tax effective from June 2023, it fundamentally reshaped financial reporting requirements . Under Ministerial Decision No. 114 of 2023, the Ministry of Finance mandated that all taxable persons must prepare their financial statements in accordance with IFRS .

Here’s what this means in practical terms:

• Revenue exceeding AED 3 million? Full IFRS compliance is required
• Revenue below AED 3 million? You may qualify for cash-basis accounting or Small Business Relief (available until December 2026) 
• Qualifying Free Zone Person? Audited IFRS financial statements are mandatory regardless of revenue to maintain the 0% tax rate 

The Federal Tax Authority (FTA) has made it clear: accounting income before tax, as per IFRS-compliant financial statements, is the starting point for computing taxable income . This isn’t optional—it’s the foundation of your tax filing.

The 2025 Updates You Need to Know

Ministerial Decision No. 84 of 2025, issued recently by the UAE Ministry of Finance, refined these requirements further . Taxable persons with annual revenue exceeding AED 50 million must prepare audited financial statements, and tax groups now face new requirements for aggregated financial statements effective for tax periods starting on or after 1 January 2025 .

The message is clear: the era of informal financial records is over. Transitioning your business to the IFRS Standards in the UAE is now a compliance necessity, not a choice.

The Real Cost of Getting It Wrong

A Cautionary Tale

In 2012, Arqaam Capital and Ernst & Young agreed to pay $50,000 each for failing to comply with IFRS regarding art valuations . While this case dates back, it remains a powerful reminder that regulators in the UAE take IFRS compliance seriously. The Dubai Financial Services Authority stated unequivocally that “it is important that the financial statements of financial services firms are clear and do not have the potential to mislead” .

Today’s Penalties

Under the current Corporate Tax framework, non-compliance can trigger:

• Financial penalties under the Tax Procedures Law
• Rejected deductions and adjustments to taxable income
• Heightened risk of tax audits and reassessments
• Potential loss of Qualifying Free Zone Person benefits 

Key Challenges Businesses Face During Transition

Through our work with UAE businesses, we’ve identified three areas where companies consistently struggle when transitioning their business to the IFRS Standards in the UAE.

1. Loan Accounting vs Bank Repayment Schedules

A client in Abu Dhabi was recording loan interest expense based on their bank’s repayment schedule, completely overlooking the effective interest method required under IFRS 9 . This led to underreported interest expenses and misclassified liabilities.

The fix required restating their loan amortization schedules and applying the correct model—a painful lesson in why IFRS knowledge matters.

2. Lease Accounting: Substance Over Legal Form

One hospitality client in Abu Dhabi was expensing rent annually, citing that their lease agreement was structured as a one-year renewable contract . On paper, this appeared to qualify as a short-term lease exemption under IFRS 16.

However, a deeper review revealed significant capital investments in fit-outs and long-term operational commitments. The substance of the arrangement—long-term occupancy—required recognizing a right-of-use asset and corresponding lease liability .

3. Provision for Bad Debts Under IFRS 9

Many businesses still create provisions only when debts are visibly overdue. But IFRS 9 mandates a forward-looking Expected Credit Loss (ECL) model that incorporates historical data, current economic conditions, and reasonable future forecasts .

Improper application—or worse, ignoring it—distorts income recognition and leads to overstated receivables and inflated taxable profits.

Practical Steps for a Smooth Transition

Based on helping numerous UAE businesses through this process, here’s a roadmap that works:

Step 1: Conduct a Gap Assessment

Before making any changes, understand where you currently stand. Review your existing financial statements against IFRS requirements. Key areas to examine:

• Revenue recognition practices
• Lease accounting treatment
• Loan and financing arrangements
• Provision methodologies

Step 2: Understand Key Adjustments to Accounting Income

The FTA’s guidance on determining taxable income outlines several critical adjustments :

Step 3: Build the Right Team

Transitioning your business to the IFRS Standards in the UAE requires both finance and operational expertise. Consider:

• Engaging auditors with deep IFRS and UAE tax experience
• Training internal finance teams on IFRS requirements
• Establishing a disclosure committee for oversight
• Documenting all accounting policies and judgements

Step 4: Implement Robust Systems

Treat your IFRS compliance like you treat your banking—with controls, documentation, and verification. Create:

• Method memos for each accounting area
• Calculation workbooks with change logs
• Data extracts and sign-offs
• Control testing records 

Special Considerations for Different Business Types

Tax Groups

For tax groups, Federal Tax Authority Decision No. 7 of 2025 mandates aggregated financial statements prepared on a line-by-line basis, eliminating intra-group transactions . Key requirements:

• All members must use consistent accounting policies
• Investments in non-tax group entities must be carried at cost less impairment
• Statements must be presented in AED
• The aggregation framework must be disclosed 

Qualifying Free Zone Persons

QFZPs face particularly stringent requirements. Audited IFRS financial statements are mandatory regardless of revenue to maintain the 0% tax rate on qualifying income . The FTA’s guidance on taxable income applies equally to QFZPs insofar as they have non-qualifying income subject to 9% tax .

Small and Medium Enterprises

SMEs with revenue below AED 3 million may qualify for IFRS for SMEs or cash-basis accounting . However, as you grow, early preparation for full IFRS adoption will serve you well. The transition from SME reporting to full IFRS is itself a significant undertaking.

The Bigger Picture: Why This Matters Beyond Compliance

A 2024 academic study examining IFRS adoption in Arab Gulf countries found that transitioning to IFRS standards considerably increases transparency and enables foreign direct investment inflow, thereby ensuring economic growth . The research, covering data from 2010 to 2020 across Saudi Arabia, UAE, Qatar, Oman, Kuwait, and Bahrain, confirmed that robust regulatory frameworks amplify these benefits .

For your business, this means:

• Better access to financing – Banks and investors trust IFRS-compliant statements
• Improved decision-making – Standardized reporting reveals true performance
• Enhanced credibility – Suppliers, partners, and customers take you more seriously
• Smoother acquisitions or exits – Clean financials attract better offers

The same study noted that family-based and state-owned enterprises sometimes resist increased transparency demands . If your business falls into these categories, recognize that resistance now may cost you opportunities later.

Common Questions About IFRS Transition

How long does the transition take?

For most established businesses, allow 3-6 months for a thorough transition, including staff training, system adjustments, and parallel reporting during the first year.

Can we do this internally?

Larger finance teams may handle portions internally, but most UAE businesses benefit from expert guidance—at least for the initial transition and first-year implementation.

What’s the cost?

Costs vary dramatically based on business complexity. Simple trading businesses may spend AED 15,000-25,000 on advisory support, while complex groups with multiple entities should budget significantly more. Consider it an investment in compliance and credibility.

What about sustainability reporting?

While this article focuses on financial IFRS, note that IFRS S1 and S2 sustainability disclosure standards are coming. Private companies should expect banks and partners to expect ISSB-aligned reports by 2026 .

Your Transition Checklist

Use this practical checklist to guide your IFRS transition:

• Determine your reporting category (full IFRS, IFRS for SMEs, or cash basis)
• Conduct gap analysis against IFRS requirements
• Review leases for IFRS 16 implications
• Assess loan accounting against IFRS 9 effective interest method
• Implement forward-looking ECL model for receivables
• Document related party transactions and pricing
• Establish consistent accounting policies across group entities
• Train finance team on IFRS requirements and tax adjustments
• Create method memos and evidence packs for all key areas
• Engage auditors early for pre-assurance reviews
• File Corporate Tax return with IFRS-compliant statements
• Retain all records for minimum seven years 

Conclusion

Transitioning your business to the IFRS Standards in the UAE isn’t just about avoiding penalties—it’s about positioning your company for sustainable growth in a maturing economy. The UAE’s transformation into a tax-transparent jurisdiction demands that businesses evolve alongside regulatory frameworks.

The businesses that treat this transition as an opportunity rather than a burden will emerge stronger: better financed, more credible, and better managed. Those who delay or resist will find themselves increasingly disadvantaged as banks, investors, and partners demand IFRS-compliant information.

I’ve seen firsthand how daunting this process can feel. But I’ve also watched clients breathe sighs of relief once they have clean, compliant financials—and the peace of mind that comes with knowing they’re prepared for whatever comes next.

Ready to Navigate Your IFRS Transition?

At Ghalib Consulting, we specialize in helping UAE businesses navigate exactly this journey. With deep expertise in both IFRS requirements and the local regulatory landscape, we provide practical guidance that goes beyond theory.

Whether you’re just beginning to explore what IFRS means for your business or you’re already preparing for your first Corporate Tax filing, our team can help you:

• Assess your current compliance status
• Develop a tailored transition roadmap
• Implement robust accounting processes
• Train your team on IFRS requirements
• Prepare for audit and tax filing with confidence

Don’t leave compliance to chance. Contact Ghalib Consulting today for a confidential discussion about your business’s IFRS transition needs. Together, we’ll build a financial foundation that supports your growth for years to come.