The Freezones in the UAE is popular among global companies due to the unparalleled benefits such as hassle-free approvals, complete foreign ownership, tax benefits and fast incorporation at lower costs when compared to mainland companies. These Freezones offer a specialized tax, customs and imports regime for the benefit of the companies. Separate rules and regulations govern the member companies, specifically designed and prepared for the functioning of free zones.
Audit Requirements for Companies in Dubai Free Zone
In the UAE, many of the free zone authorities have mandated the companies licensed and operating in free zones to submit annual company audit reports to the respective authority. In UAE Freezones, the general requirement for businesses is to maintain company financial records for a minimum period of five years. The JAFZA Implementing Regulations of the year 2016 clearly states that the Free Zone Companies (FZCO) and Free Zone Establishments (FZE) must mandatorily retain their financial records for six years.
Companies have the flexibility to choose their financial year as per their requirement. However, that chosen financial year should commence from the date of company incorporation. Also, the financial year cannot be less than six months and more than 18 months. The free zone authorities require the companies operating to prepare and submit the reports to them within 90 days of its financial year-end. Few free zones, such as Dubai South, requires companies to submit the report as part of the annual trade license renewal process. The Free Zone Companies may be subject to an AED 5,000 financial penalty monthly in case if the submission of the required audited financial report is pending. In exceptional cases, the companies can request the authorities for an extension of the deadline for the submission of audited financial reports.
Companies' significant risk for failing to submit audited financial reports is the non-renewal of their trade licence in the Freezones, which will prohibit any operations. The books of the company's accounts should be kept at the registered office or any equivalent place agreed by the company's board of directors. The financial records require to be made accessible to appointed approved auditors in the UAE Freezones at the audit time every year. The businesses are required to store and maintain the books of accounts as per relevant UAE Tax Laws.
The free zone authorities strictly insist that the company audit be conducted by registered and Approved Auditors in the UAE. The free zone companies that ignore this requirement will usually incur fines & penalties or face dire consequences such as non-renewal of annual trade license, restricting company operations in the UAE Freezones. The mandatory company audit requirement is in force in all reputed free zones of the UAE, including Jebel Ali Free Zone (JAFZA), Dubai International Financial Centre (DIFC), Dubai Multi Commodities Centre (DMCC), Dubai Airport Free Zone (DAFZA), Dubai South free zone etc.
The approved auditors must be qualified audit firms based in the UAE with a valid trade license to conduct auditing company accounts. As most of the free zone authorities demand the submission of annual audit reports at the time of trade license renewal, any non-compliance with the requirements may affect the license renewal. Companies operating in the free zones must hire approved audit firms in the UAE free zones to avoid fines & penalties and prevent non-renewal of trade licenses in the free zones. Free Zone Companies can, by all means, are allowed to maintain their annual financial statements. But these financial records are required to be independently verified by the qualified auditors that the Free Zone Authorities approve before they can submit to them.
Jaxa Chartered Accountants are one of the pioneer auditors in the UAE and approved auditors for most UAE Freezones. We have a presence all over the UAE providing services to both local and international companies operating the UAE mainland and the different Freezones. Our consultants always guide and assist companies in maintaining financial records, which are very significant during the audit. Please Contact Us for any queries regarding the audit process and other pre-requisites. We'd be happy to help!