Cash basis accounting: what it means for UAE businesses.

What cash basis accounting means

Also called: Cash accounting.

Cash basis accounting records income when money is received and expenses when money is paid. There are no receivables, payables, accruals or depreciation, and no balance sheet in the usual sense. It is simple, which is why very small businesses like it.

For UAE Corporate Tax, Ministerial Decision No. 114 of 2023 defines the cash basis and allows it in two cases only: where revenue does not exceed AED 3 million, or in exceptional circumstances on application to the Federal Tax Authority. The FTA's accounting standards guide adds that the AED 3 million test is itself measured on the cash basis, and that a business crossing the limit must move to accrual accounting unless the FTA approves an exception.

Two limits matter for an SME. First, the cash basis does not change VAT: output tax is still due on the date of supply under the VAT Law, even if the customer has not paid. Second, the Commercial Companies Law requires companies to apply international accounting standards and limited liability companies to have their accounts audited, so a company may still need accrual accounts for its shareholders and auditor even where Corporate Tax would allow the cash basis.

How it works

• Revenue is recorded on the day cash reaches the business; card receipts count when the bank account is credited and cheques when they are cashed.
• Expenses are recorded when paid; a credit card purchase counts when the card bill is settled.
• Asset purchases are not depreciated; the FTA guide says a deduction may be taken for assets purchased instead.
• Eligibility is tested each tax period: revenue above AED 3 million on the cash basis means switching to the accrual basis unless the FTA agrees an exceptional circumstance.
• A business can apply to the FTA to change from the cash basis to the accrual basis from the start of the current or a future tax period (Corporate Tax Law, Article 20, Clause 6).

Worked example

A Dubai interior design studio, registered for VAT, issues invoices worth AED 2,900,000 before VAT in 2026. It receives AED 2,650,000 of that in 2026 and the rest in January 2027.

Invoices issued in 2026, before VAT	AED 2,900,000
Cash received in 2026 for those invoices, before VAT	AED 2,650,000
Revenue for 2026 on the cash basis	AED 2,650,000
Output VAT due on 2026 invoices at 5%	AED 145,000

Cash basis revenue stays under AED 3 million, but VAT is due on all AED 2,900,000 invoiced, because VAT follows the date of supply, not the cash.

Common mistakes

• Assuming the cash basis also delays VAT. Output tax is due on the date of supply under the VAT Law, whether or not the customer has paid.
• Staying on the cash basis after revenue passes AED 3 million without FTA approval.
• Using cash basis figures for a company whose auditor needs accrual accounts under the Commercial Companies Law, then having to rebuild the year.

The law

• Ministerial Decision No. 114 of 2023, Article 1 (definition of Cash Basis of Accounting) and Article 2 (Preparing Financial Statements Using the Cash Basis of Accounting)
• Federal Decree-Law No. 47 of 2022, as amended, Article 20, Clauses 5 and 6
• Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, Article 25 (Date of Supply)
• Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 27 (Accounts of the Company)

Frequently asked questions

Is the AED 3 million cash basis limit the same as the Small Business Relief limit?

Both use AED 3 million, but they are separate tests. The FTA guide explains that revenue for Small Business Relief may be measured under IFRS, IFRS for SMEs or the cash basis, while eligibility for the cash basis itself is always measured on the cash basis. See the small business relief entry.

What counts as an exceptional circumstance?

The FTA guide gives the example of a business that expects to exceed AED 3 million for only one tax period. It must apply to the FTA and keep evidence for that expectation; approval is not automatic.

Related terms

Accrual basis accounting · Small Business Relief · Time of supply · Accounts receivable · Taxable income. See every term in the UAE tax glossary.

For the full picture, read our guide: Corporate Tax 2026: What UAE SMEs Need to Know About SBR.

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