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You’ve set up a company in Dubai, or you’re about to. Then your accountant asks a question that sounds harmless. Cash or accrual?
It isn’t a formality. The answer decides when your profit shows up on paper, and whether your Dutch BV can make sense of the numbers coming from the UAE. It also moves the year in which you pay corporate tax. So here’s how cash vs accrual accounting in the UAE actually works, and how to pick.
Quick answer. If your revenue stays at or below AED 3 million in a tax period (roughly EUR 700,000 to 750,000, depending on the exchange rate), the UAE lets you keep your books on a cash basis. Above that, accrual is the rule. Even below it, most Dutch owners with a BV in the background are better off on accrual.
Cash accounting records money when it lands in your bank account or leaves it. Accrual accounting records a sale or a cost when it’s earned or incurred, whether or not the money has moved yet.
Say you invoice a client in December and they pay in February. On a cash basis, that income belongs to next year. On an accrual basis, it belongs to this one.
That’s the whole idea. The practical gap is bigger than it sounds, though. Cash books can be built from a bank statement. Accrual books need a proper record of who owes you and who you owe, which is where the bookkeeping requirements for UAE companies start to matter.
Only within limits. For corporate tax, the rules sit in Ministerial Decision 114 of 2023, and DLA Piper’s summary of the decision is a good plain read. Accrual is the default for taxable persons. Cash basis is allowed when your revenue doesn’t go above AED 3 million in the tax period, or in exceptional cases where the Federal Tax Authority approves your application.
Two other thresholds often get mixed in. Businesses with revenue up to AED 50 million can use IFRS for SMEs instead of full IFRS. Audited financial statements kick in at AED 50 million of revenue, and they also apply to Qualifying Free Zone Persons.
So the AED 3 million line is the one that matters for this decision. Stay under it and you’ve got a real choice. Go over it and the choice is made for you.
Take a consultant who runs a free zone company from Dubai, serves European clients and isn’t a Qualifying Free Zone Person. Over the year the company invoices AED 2,400,000 and collects AED 1,800,000, because AED 600,000 of invoices are still unpaid on 31 December. It incurs AED 1,100,000 in costs and pays AED 900,000 of them.
Same business, same year. Two sets of books.
| Cash basis (AED) | Accrual basis (AED) | |
|---|---|---|
| Revenue recorded | 1,800,000 | 2,400,000 |
| Costs recorded | 900,000 | 1,100,000 |
| Profit | 900,000 | 1,300,000 |
| Corporate tax at 9% above AED 375,000 | 47,250 | 83,250 |
| Simplified illustration. It ignores other tax adjustments and assumes no Small Business Relief. | ||
| Situation | Usually fits | Why |
|---|---|---|
| Solo consultant, a handful of invoices, revenue under AED 3 million, no Dutch reporting | Cash basis | A bank statement does most of the work |
| Company that sells on credit terms or holds stock | Accrual | Cash books hide what you are owed and what you hold |
| Qualifying Free Zone Person | Accrual | Audited financial statements are required, and accrual is the practical fit |
| UAE company owned by a Dutch BV | Accrual | A Dutch parent typically keeps accrual books and needs matching figures |
| Business planning to raise money or ask a bank for credit | Accrual | Lenders want to see receivables and payables |
Banks often want up-to-date financial statements, and accrual figures answer their questions faster. Our comparison of the best banks in Dubai for Dutch entrepreneurs covers what they usually ask for.
A Dutch BV generally keeps its books on an accrual basis. If your UAE company runs on cash basis, someone has to convert the numbers every quarter or every year. That conversion costs time, and it’s where mistakes creep in.
How the Dutch side treats a Dubai company depends on where you’re tax resident and how the structure is built. A blog post can’t settle that, and it’s worth checking with someone who knows both systems. For a starting point, the taxes Dutch people still pay in Dubai explains the usual surprises, and running a Dutch owned business in Dubai covers the wider setup.
Our view is simple. If a Dutch company sits anywhere in your structure, choose accrual from day one, even when cash basis is allowed.
Yes, and sometimes you’ll have to. Once your revenue goes above AED 3 million, cash basis isn’t available any more, so plan the move before you cross the line. A voluntary change from cash to accrual goes through the Federal Tax Authority, and it can apply from the start of the tax period in which you apply or from a later one.
The hard part isn’t the switch itself. It’s building opening balances for receivables, payables, prepayments and accruals so nothing gets counted twice or missed. If you’ve been keeping simple records, set aside real time for that. Our team handles this kind of clean-up through accounting and bookkeeping in Dubai.
Is accrual accounting mandatory in the UAE?
It’s the default for corporate tax. Cash basis is the exception, open to businesses with revenue up to AED 3 million or to those the Federal Tax Authority approves in exceptional cases.
Can a free zone company use cash basis accounting?
Yes, if it isn’t claiming Qualifying Free Zone Person status and its revenue stays within AED 3 million. A Qualifying Free Zone Person needs audited financial statements, so accrual is the practical route.
Does cash basis accounting reduce corporate tax?
No. It changes when income and costs count, so tax moves between years. Over time the total is the same. Small Business Relief is what removes tax, and that’s a separate election.
Is Small Business Relief still available after 2026?
Yes. Ministerial Decision 131 of 2026 extended it to tax periods ending on or before 31 December 2029, with the AED 3 million revenue limit unchanged. You still elect it on your return each year.
What is AED 3 million in euros?
Roughly EUR 700,000 to 750,000, depending on the exchange rate. Check the live rate before you rely on the number.
Revenue forecasts, group structures and free zone status all interact, and a wrong guess costs more to fix than to avoid. Book a free consultation and we’ll look at your numbers. If you’d rather start with the tax side, our tax consultant in Dubai team can walk through it with you. This article is general information, not advice for your specific case.
Pick the method before the first invoice goes out. Changing the books later is the expensive route.
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