Accrual basis accounting: what it means for UAE businesses.

What accrual basis accounting means

Also called: Accrual accounting, Accruals basis.

Under accrual basis accounting, income is recorded when it is earned and expenses when they are incurred, whatever the date cash changes hands. An invoice issued in December is December income even if the customer pays in February, and December salaries are a December cost even if they are paid on 2 January.

Both accounting standards accepted for UAE Corporate Tax are accrual based. Ministerial Decision No. 114 of 2023 requires IFRS, or IFRS for SMEs where revenue does not exceed AED 50 million, and IFRS for SMEs states plainly that financial statements, other than cash flow information, are prepared on the accrual basis. The cash basis is allowed only where revenue does not exceed AED 3 million, or in exceptional circumstances approved by the FTA.

For an SME, accruals matter because Taxable Income starts from accounting income. Missing accruals move profit between tax periods, which can change the tax payable, affect Small Business Relief eligibility and trigger questions in an FTA audit. Companies also need accrual accounts for their statutory audit under the Commercial Companies Law. VAT is a separate matter: it is due on the date of supply set by the VAT Law, not on the accounting treatment.

How it works

• Revenue is recognised when goods are delivered or services are performed, and a receivable is recorded until the customer pays.
• Costs incurred but not yet invoiced or paid at period end are recorded as accruals; costs paid in advance are carried as prepayments.
• Fixed assets are capitalised and depreciated over their useful lives rather than expensed when paid.
• Only businesses preparing accounts on an accrual basis may elect to tax certain gains and losses on a realisation basis under Corporate Tax Law Article 20, Clause 3.
• A business that moves above the AED 3 million revenue limit must switch from cash to accrual accounting unless the FTA approves an exceptional circumstance.

Worked example

A Dubai IT consultancy with a 31 December year end invoices AED 120,000 for December 2026 work, paid by the client in January 2027. Its December 2026 salaries of AED 80,000 are paid on 2 January 2027.

December fees recognised in 2026 (accrual basis)	AED 120,000
December salaries recognised in 2026 (accrual basis)	AED 80,000
Effect on 2026 accounting income, accrual basis	AED 40,000
Effect on 2026 accounting income, cash basis	AED 0

On the accrual basis the December activity lands in the 2026 tax period; on the cash basis both items would move to 2027.

Common mistakes

• Recording income only when the customer pays, which understates revenue and receivables at year end.
• Forgetting accruals for supplier invoices that arrive after the period closes, such as utilities, rent and professional fees.
• Assuming the accounting treatment decides when VAT is due; VAT follows the date of supply rules in the VAT Law.

The law

• Ministerial Decision No. 114 of 2023, Article 2 (cash basis) and Article 4 (Applicable Accounting Standards)
• Federal Decree-Law No. 47 of 2022, as amended, Article 20, Clauses 1, 3, 5 and 6
• IFRS for SMEs Accounting Standard (third edition, February 2025), paragraph 3.16A (Accrual basis)

Frequently asked questions

Can a company below AED 3 million revenue still use accrual accounting?

Yes. The cash basis is an option, not a requirement. Many small companies use accrual accounting anyway because their auditors, banks and shareholders expect IFRS or IFRS for SMEs accounts.

Does accrual accounting mean paying tax on money not yet received?

It can. Income is taxed in the period it is earned, even if the customer pays later. If a customer never pays, the loss is recognised through impairment in the accounts, and bad debt relief may recover the VAT.

Related terms

Cash basis accounting · Accruals and prepayments · Taxable income · Small Business Relief · Accounts receivable. 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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