Balance sheet: what it means for UAE businesses.

What balance sheet means

Also called: Statement of financial position.

A balance sheet, called the statement of financial position under IFRS, lists a business's assets, liabilities and equity at a single date, usually the last day of its financial year. Assets always equal liabilities plus equity, which is why it balances.

In the UAE it is a legal document, not just a management tool. Article 27 of the Commercial Companies Law requires every mainland company to prepare annual accounts that include a balance sheet, applying international accounting standards. Ministerial Decision No. 114 of 2023 lists the balance sheet as part of the complete set of financial statements used for Corporate Tax. The FTA's accounting standards guide notes that a business using the cash basis, which is allowed only where revenue does not exceed AED 3,000,000 or with FTA approval, has no balance sheet for Corporate Tax purposes.

The balance sheet also has lasting tax and legal effects. Under Article 61 of the Corporate Tax Law, the closing balance sheet for the year before a company's first tax period became its opening balance sheet for Corporate Tax. And when losses shrink equity far enough, the capital loss rules in Article 308 of the Companies Law are triggered.

How it works

• Current assets include cash, trade receivables, stock and any VAT refund due. Non-current assets include equipment, fit-out and long-term deposits.
• Liabilities include trade payables, VAT payable to the FTA, Corporate Tax due within nine months of the year end, bank loans and the end-of-service gratuity provision.
• Equity is share capital plus the statutory reserve and retained earnings, less any accumulated losses.
• Article 61 of the Corporate Tax Law makes the closing balance sheet before the first tax period the opening balance sheet for Corporate Tax, prepared in line with the arm's length principle.
• If an LLC's losses reach half of its capital, Article 308 of the Companies Law requires the managers to refer the question of dissolution to the general assembly.

Worked example

A Dubai trading LLC closes its financial year on 31 December. Its summarised balance sheet looks like this.

Cash and bank	AED 180,000
Trade receivables	AED 260,000
Inventory	AED 140,000
Equipment and fit-out, net of depreciation	AED 220,000
Total assets	AED 800,000
Trade payables	AED 190,000
VAT payable to the FTA	AED 25,000
Corporate Tax payable	AED 18,000
End-of-service gratuity provision	AED 67,000
Total liabilities	AED 300,000
Share capital	AED 300,000
Statutory reserve	AED 20,000
Retained earnings	AED 180,000
Total equity	AED 500,000
Total liabilities and equity	AED 800,000

Assets of AED 800,000 equal liabilities of AED 300,000 plus equity of AED 500,000, with the VAT and Corporate Tax balances shown as separate liabilities.

Common mistakes

• Leaving VAT and Corporate Tax balances in a suspense account instead of showing them as separate lines that agree to the FTA returns and assessments.
• Mixing the owner's personal spending into company bank and loan accounts, which undermines the standalone financial statements that Article 20 of the Corporate Tax Law requires.
• Carrying old receivables and slow-moving stock at full value, which overstates assets and can hide losses that matter under the capital loss rules.

The law

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 27 (Accounts of the Company) and Article 308 (Losses incurred by a Limited Liability Company)
• Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods, Article 1 (definition of Financial Statements) and Article 2 (cash basis)
• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended, Article 20 Clause 1 and Article 61 (Transitional Rules)

Frequently asked questions

Is a balance sheet the same as a statement of financial position?

Yes. IFRS uses the name statement of financial position, while the Commercial Companies Law and Ministerial Decision No. 114 of 2023 call it the balance sheet. The content is the same.

Do we still need a balance sheet if we use the cash basis for Corporate Tax?

For Corporate Tax, the FTA's guide says there is no balance sheet under the cash basis. A mainland company still has to prepare an annual balance sheet under Article 27 of the Commercial Companies Law, so most companies keep one anyway.

Related terms

Profit and loss statement · Cash flow statement · Retained earnings · Share capital · Trial balance. See every term in the UAE tax glossary.

For the full picture, read our guide: Audit Requirements for UAE Companies Under Corporate Tax.

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