Going concern: what it means for UAE businesses.

What going concern means

Also called: Going concern basis.

Going concern is the assumption that a business will continue operating for the foreseeable future. Financial statements are prepared on that basis unless management intends to liquidate the business or stop trading, or has no realistic alternative. Under IFRS, management must assess this looking at least twelve months from the end of the reporting period, and disclose material uncertainties that cast significant doubt on the business's ability to continue.

UAE companies that report under IFRS or IFRS for SMEs, as Corporate Tax requires, apply these rules, and their auditors report on them under the international auditing standards adopted in the UAE. From 2027, IFRS 18 moves the requirement from IAS 1 to IAS 8 without changing it.

UAE law adds its own triggers. Under Article 308 of the Commercial Companies Law, when an LLC's losses reach half of its capital, the managers must put dissolution to the general assembly, and at three quarters, partners holding a quarter of the capital can ask for dissolution. The Financial Restructuring and Bankruptcy Law gives a debtor 60 days from ceasing to pay its debts to apply for preventive settlement or bankruptcy. Rescue funding also has a tax edge: carried forward tax losses are restricted after a change of more than 50% in ownership unless the same or a similar business continues.

How it works

• Management assesses going concern each time accounts are prepared, looking at least twelve months ahead from the reporting date.
• Where there are material uncertainties, the accounts disclose them; where the business will be wound up, a different basis is used.
• Events after the year end are considered; if the business must cease trading before the accounts are approved, the going concern basis cannot be used.
• An LLC whose losses reach half of its capital must refer dissolution to the general assembly (Article 308).
• A new owner taking more than 50% can keep the tax losses only if the same or a similar business continues (Corporate Tax Law, Article 39).

Worked example

A Dubai cafe operator set up as an LLC with AED 300,000 of capital has had two difficult years.

Share capital	AED 300,000
Half of capital (Article 308 trigger)	AED 150,000
Accumulated losses at year end	AED 170,000
Equity remaining	AED 130,000
Losses above the trigger	AED 20,000

Losses have passed half of the capital, so the managers must put dissolution to the partners, and the accounts need a documented going concern assessment.

Common mistakes

• Signing accounts on a going concern basis without a cash flow forecast covering at least twelve months from the year end.
• Ignoring the Article 308 capital loss trigger because the company still has cash in the bank.
• Bringing in a new majority investor without checking the effect on carried forward tax losses.

The law

• Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 308 (Losses incurred by a Limited Liability Company)
• Federal Decree-Law No. 51 of 2023 Promulgating the Financial Restructuring and Bankruptcy Law, attached law, Article 15 (Submission of the Application by the Debtor)
• Federal Decree-Law No. 47 of 2022, as amended, Article 37 (Tax Loss Relief) and Article 39 (Limitation on Tax Losses Carried Forward)

Frequently asked questions

Does a going concern note in our accounts mean the company is insolvent?

No. A material uncertainty disclosure means there is significant doubt, not that the business has failed. Accounts are still prepared on a going concern basis unless management intends or is forced to stop trading.

What must an LLC do when losses reach half of its capital?

Under Article 308 of the Commercial Companies Law, the managers must refer the question of dissolution to the general assembly, which decides by the majority needed to amend the memorandum of association.

Related terms

Share capital · Retained earnings · Tax loss relief · Audited financial statements · Cash flow statement. See every term in the UAE tax glossary.

For the full picture, read our guide: UAE Corporate Tax Losses: How to Carry Them Forward and Use Them.

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