The Abu Dhabi Global Market (ADGM) has emerged as one of the leading international financial centres in the region, attracting businesses from across the globe. As the UAE continues to strengthen its corporate governance and tax frameworks, companies incorporated in ADGM are required to comply with detailed financial statement and audit obligations. These requirements are especially important for entities classified as Qualifying Free Zone Persons (QFZPs) under the UAE Corporate Tax Law, which allows them to benefit from a 0% corporate tax rate on qualifying income if conditions are met.
This article provides an in-depth look at the key rules and responsibilities around accounts preparation, audits, exemptions, and filing obligations for ADGM entities, with a particular focus on QFZPs.
Introduction to ADGM and Its Regulatory Role
Established in 2013, ADGM operates with its own civil and commercial laws based on English common law. The Registration Authority (RA) is responsible for company registration, licensing, and oversight of compliance with ADGM's commercial legislation. Among its functions, the RA monitors how entities maintain their accounts and meet their audit obligations.
The Companies Regulations 2020 (CR 2020), the Commercial Licensing Regulations 2015 (CLR 2015), and related frameworks govern the preparation, audit, and filing of financial statements. All companies, including dormant ones must maintain accounting records for at least ten years. These records must accurately reflect the company's financial position and enable compliance with reporting obligations.
Accounts Preparation in ADGM
Every ADGM company, unless exempt, must prepare annual accounts. These include:
- Individual accounts: Prepared by all companies for each financial year.
- Group accounts: Required for parent companies, unless they qualify for an exemption.
Financial statements must follow International Accounting Standards (IAS) as issued by the International Accounting Standards Board (IASB). In practice, this means accounts must comply with International Financial Reporting Standards (IFRS), ensuring global consistency and transparency.
Directors have a fiduciary duty to ensure the accounts fairly represent the company's assets, liabilities, financial position, and results. Importantly, accounts must not be approved unless directors are satisfied of their accuracy.
Audit Requirements in ADGM
The default rule under CR 2020 is that all companies must have their financial statements audited. These audits must be carried out by an ADGM registered auditor. However, there are specific exemptions available:
1. Small Standalone Companies
Companies that are not parent entities may qualify for exemption if they meet both thresholds:
- Turnover of not more than USD 13.5 million
- No more than 35 employees
2. Small Parent Companies
Parent companies can qualify if both the parent and the group it heads fall under the small company thresholds. The assessment is two-fold:
First, the parent company individually must meet the small company criteria. Second, the group must qualify as small, where companies may use either:
- Net turnover not more than USD 13.5 million, OR
- Gross turnover not more than USD 16.2 million
Both options require the group employee count not to exceed 35.
When assessing group size, entities must consider the largest group of which they are part, including parents and fellow subsidiaries in addition to the group they head.
3. Subsidiary Companies
A subsidiary may qualify for exemption if its ADGM-registered parent provides a guarantee and the subsidiary is included in consolidated group accounts filed with the RA.
4. Dormant Companies
A company may be considered dormant if it has no significant accounting transactions during the financial year. If so, it can avail audit exemption, but must disclose its dormant status on the balance sheet.
Impact of UAE Corporate Tax on ADGM Entities
The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) introduced a 9% corporate tax regime, effective from June 2023. However, Free Zone companies, including those in ADGM, may still benefit from a 0% corporate tax rate on qualifying income if they are classified as QFZPs.
To maintain QFZP status and enjoy the 0% rate, entities must:
- Carry out qualifying activities (such as transactions with other free zone entities, certain activities with non-free zone persons, or income from intellectual property).
- Avoid excluded activities (such as dealings with natural persons or income from immovable property not qualifying under the law).
- Meet de minimis requirements for non-qualifying income.
Most importantly, all QFZPs must prepare and maintain audited financial statements, regardless of size or revenue levels. Even small or dormant companies that otherwise qualify for audit exemption under CR 2020 must undergo an audit if they wish to claim QFZP benefits under the Corporate Tax Law.
Filing Requirements for ADGM Companies
Filing obligations are another critical part of compliance.
- Who must file: All private limited and public limited companies must file accounts with the RA. Restricted Scope Companies (RSCs) and dormant subsidiaries are exceptions. Unlimited companies may also be exempt, subject to conditions.
- What must be filed: Under normal ADGM rules, small companies may ordinarily file an unaudited balance sheet. However, QFZPs cannot rely on this exemption if they want to benefit from the 0% tax rate. Critically, IFRS does not permit companies to prepare two separate sets of general-purpose financial statements. Therefore, once audited financials are prepared for corporate tax compliance, those same audited financial statements must be filed with the RA.
- Accounting standards: All accounts must follow IFRS, meaning companies must maintain consistency in their financial reporting across all regulatory requirements.
- Deadlines: Late filings can result in penalties from both the ADGM Registration Authority and potentially the Federal Tax Authority, and directors may be held personally liable. Companies must file accounts through ADGM's online registry.
Critical Filing Deadline
ADGM licensed QFZPs with accounts due to be filed by 30 September 2025 must make every effort to ensure their filings comply with both ADGM's commercial legislation and UAE Corporate Tax Law requirements. This deadline is particularly important for maintaining QFZP status and the associated 0% corporate tax benefit.
Companies should consider whether they qualify for and should apply for an account filing extension from the Registration Authority if necessary.
Transitional Relief for Small Companies
Recognizing the compliance burden created by the new tax regime, the RA has allowed a "no action position" for certain small companies, but this relief is strictly limited:
- Applies only to the first fiscal period under corporate tax where the company was required to undergo an audit solely to comply with UAE Corporate Tax Law, and the company would otherwise have qualified for exemption under the small companies' regime.
- This relief is temporary and intended to ease transition. Companies should not assume it applies beyond the first tax period, and enforcement actions may resume for later periods.
- The relief does not prevent the RA from returning accounts as defective for other compliance issues not covered by this specific guidance.
The Role of ADGM Registered Auditors
All statutory audits must be carried out by ADGM registered auditors. The RA maintains a public register of approved audit firms and individuals, which companies can use to ensure proper appointment. Directors must formally resolve the appointment of an auditor, and failure to engage a registered auditor may invalidate the audit for regulatory purposes.
Penalties and Enforcement
Failure to comply with ADGM's filing and audit obligations can result in significant consequences from multiple authorities:
ADGM Registration Authority Penalties:
- Late filing penalties imposed by the RA
- Possible rejection of accounts deemed defective
- Potential liability for directors who approve inaccurate or non-compliant financial statements
Federal Tax Authority (FTA) Penalties:
- Risk of losing QFZP status and consequently forfeiting the 0% corporate tax benefit
- Additional FTA penalties for non-compliance with corporate tax obligations
It is important to note that the RA's transitional guidance does not override or bind the FTA's enforcement approach. Companies may face separate enforcement actions from the FTA regardless of any relief provided by the ADGM Registration Authority.
Why This Matters for Businesses
For businesses operating in ADGM, compliance is not just about avoiding penalties. It is also about:
- Maintaining QFZP status to enjoy 0% corporate tax
- Building investor and regulator confidence with transparent, IFRS-compliant financials
- Protecting directors from personal liability by ensuring accounts are accurate and properly audited
- Future-proofing operations as UAE corporate tax matures and enforcement tightens from multiple regulatory bodies
Conclusion
The introduction of corporate tax in the UAE has fundamentally changed the compliance landscape for ADGM companies. While Free Zone entities continue to benefit from a preferential 0% tax rate on qualifying income, this benefit comes with stricter compliance requirements that override traditional audit exemptions. For Qualifying Free Zone Persons (QFZPs), maintaining audited financial statements is non-negotiable, even for small or dormant companies.
The interaction between ADGM's commercial regulations and UAE Corporate Tax Law means companies must navigate requirements from multiple authorities, each with independent enforcement powers.
Businesses should take proactive steps to:
- Engage an ADGM registered auditor early
- Ensure accounts are prepared in line with IFRS as a single set of financial statements
- Understand whether they qualify as a QFZP and meet all conditions
- File accounts by the September 30, 2025 deadline to avoid penalties and preserve tax benefits
- Recognize that transitional relief is temporary and plan for full compliance in future periods
- Understand that ADGM RA guidance does not prevent separate FTA enforcement actions
In an increasingly regulated environment with multiple oversight authorities, timely compliance not only helps avoid fines from various regulators but also enhances credibility with investors, tax authorities, and counterparties.
Disclaimer
This article is provided for information purposes only. While every effort has been made to ensure accuracy and relevance, it should not be considered as legal, tax, or accounting advice. Regulatory requirements in ADGM and under UAE Corporate Tax Law may change over time, and application of the rules will depend on each company's specific circumstances. The interaction between ADGM regulations and Federal Tax Authority requirements may result in separate compliance obligations and enforcement actions. Readers are strongly advised to consult with professional advisors or ADGM-registered auditors before taking any action based on the content of this article. Neither the author nor this website accepts any liability for losses or damages arising from reliance on the information provided.
Please download the ADGM Guidance document for more information.
