For the first time, UAE free zone entities must satisfy two masters simultaneously — their Registration Authority and the Federal Tax Authority. Here’s what every CFO and Finance Director needs to understand.
The deadline has passed. September 30, 2025 marked the first major corporate tax filing deadline for thousands of UAE businesses with December 2024 year-ends. For entities registered in Abu Dhabi Global Market and the Dubai International Financial Centre, this wasn’t merely another compliance exercise. It was the beginning of something fundamentally different.
We are now operating in what can only be described as a dual compliance era — a regulatory environment where ADGM and DIFC entities must simultaneously satisfy the requirements of their respective Registration Authorities and the Federal Tax Authority. These are independent regulatory bodies with separate enforcement powers, distinct penalty regimes, and increasingly interconnected expectations.
For finance leaders who’ve spent years navigating one set of obligations, the landscape has shifted beneath their feet. And for those who haven’t fully grasped this shift, the consequences are already materialising.
Understanding the New Regulatory Architecture
To appreciate what has changed, we must first understand what existed before.
ADGM entities have always answered to the Registration Authority for their commercial compliance obligations — annual accounts, confirmation statements, and corporate filings. The Registration Authority operates as the commercial regulator of ADGM, responsible for monitoring and enforcing compliance with ADGM’s commercial legislation under English common law principles.
DIFC entities similarly report to the DIFC Registrar of Companies for their corporate filings, operating under the Dubai Financial Services Authority’s oversight for regulated activities.
This was a single-authority model. You understood your regulator. You knew your deadlines. You filed your documents. Life was manageable.
Then came Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
Now, every ADGM and DIFC entity — regardless of size, activity level, or revenue — must also register with the Federal Tax Authority. They must file annual corporate tax returns. They must maintain documentation that satisfies FTA requirements. And for those seeking to preserve the coveted Qualifying Free Zone Person status with its 0% tax rate on qualifying income, they must meet stringent conditions that the FTA will examine independently of anything the Registration Authority requires.
This is not a merger of regulatory oversight. These remain separate authorities with separate enforcement mechanisms. The FTA does not consult the ADGM Registration Authority before issuing penalties. The Registration Authority does not defer to FTA timelines. Each authority expects compliance on its own terms.
The One-Set-of-Books Reality
Here is where the complexity becomes acute.
International Financial Reporting Standards — the accounting framework that governs financial statement preparation in both ADGM and DIFC — do not permit companies to prepare two separate sets of general-purpose financial statements. This is not a matter of preference or best practice. IFRS explicitly prohibits this.
The practical implication is significant: once audited financial statements are prepared for corporate tax compliance, those same audited statements must be filed with the Registration Authority. There is no flexibility to maintain different versions for different regulators.
This creates a convergence of requirements that many entities have not fully appreciated. The financial statements you prepare must simultaneously satisfy the presentation requirements of your Registration Authority, the tax computation needs of the Federal Tax Authority, and if you are a Qualifying Free Zone Person, the documentation standards necessary to prove your income segregation between qualifying and non-qualifying categories.
A single set of books serving multiple masters — each with their own expectations, their own review processes, and their own penalty regimes.
Why Audits Are No Longer Optional for QFZPs
For entities seeking to maintain Qualifying Free Zone Person status and benefit from the 0% corporate tax rate on qualifying income, the rules have fundamentally changed.
Under the UAE Corporate Tax Law, one of the non-negotiable conditions for QFZP status is the maintenance of audited financial statements. This is not a recommendation. It is a statutory requirement that applies to all QFZPs as part of their corporate tax filings.
What makes this particularly significant for ADGM and DIFC entities is how this interacts with their existing exemptions.
ADGM’s Companies Regulations previously allowed small companies — those with turnover not exceeding USD 13.5 million and fewer than 35 employees — to file unaudited balance sheets rather than full audited accounts. Similarly, DIFC’s Companies Law provides a carve-out for small private companies with annual turnover below USD 5 million and no more than 20 shareholders.
These exemptions still exist in the commercial legislation. But they have been effectively overridden for any entity seeking QFZP status.
The ADGM Registration Authority has acknowledged this tension. In their guidance, they have noted that ADGM licensed QFZPs must ensure their filings comply with both ADGM’s commercial legislation and UAE Corporate Tax Law requirements. Where corporate tax law requires audited financial statements, that requirement takes precedence.
The practical reality is stark: if your entity previously relied on small company exemptions to avoid audit costs, and you wish to maintain 0% tax treatment as a QFZP, you must now engage an approved auditor. The exemption that saved you money for years is no longer available to you.
The Penalty Landscape: What Is Actually at Stake
The consequences of non-compliance extend across multiple enforcement regimes. Understanding the full penalty exposure requires examining each authority’s powers separately — and then recognising that these penalties can accumulate simultaneously.
ADGM Registration Authority Penalties
Late filing of annual accounts can attract penalties of up to USD 15,000, as established under RA Circular No. 1 of 2023. Beyond financial penalties, the Registration Authority may restrict access to registry services for entities with unpaid fines, effectively freezing their ability to conduct normal corporate maintenance such as director changes, share transfers, or licence renewals.
Directors may be held personally liable for filing defaults. The Registration Authority has demonstrated its willingness to pursue enforcement action — in one notable case, penalties of USD 32,000 were imposed against a company and its three directors for repeated failure to file annual accounts.
DIFC Penalties
Failure to maintain proper accounting records can result in penalties of up to USD 25,000. Late submission of audited financials attracts a penalty of USD 1,000. For entities subject to DFSA regulation, additional supervisory consequences may apply, including restrictions on conducting regulated activities.
Federal Tax Authority Penalties
The FTA operates its own comprehensive penalty regime under Cabinet Decision No. 75 of 2023. Late corporate tax registration attracts a fixed penalty of AED 10,000. Late filing of tax returns triggers escalating monthly penalties: AED 500 per month for the first twelve months, increasing to AED 1,000 per month from the thirteenth month onwards.
Late payment of corporate tax obligations incurs interest at 14% per annum on the outstanding amount. Failure to maintain proper records as required by Corporate Tax Law attracts a penalty of AED 20,000.
The Five-Year Trap
Perhaps the most severe consequence applies specifically to Qualifying Free Zone Persons. If a QFZP breaches any of the qualifying conditions — including the de minimis threshold for non-qualifying income, the substance requirements, or the audited financial statements requirement — the entity loses its QFZP status not just for the year of breach, but for the following four tax periods as well.
The de minimis threshold permits non-qualifying revenue of up to 5% of total revenue or AED 5 million, whichever is lower. Exceed this threshold even once, and your entity faces five years at the standard 9% corporate tax rate. There is no grace margin. There is no appeal process for technical breaches.
For a free zone entity with substantial qualifying income, losing QFZP status for five years represents not just a compliance failure but a material financial impact that could dwarf any penalty amounts.
The Practical Roadmap: What Finance Leaders Should Do Now
The first corporate tax year has concluded. The lessons from this initial period should inform your approach for the years ahead. Here is what prudent finance leadership looks like in the dual compliance era.
Audit Partner Selection
If you are a QFZP or intend to claim QFZP status, you must engage an approved auditor. For ADGM entities, this means an auditor registered with the ADGM Registration Authority — the ADGM maintains a public register of recognised auditors authorised to conduct audits within its jurisdiction. The Registration Authority has confirmed that ADGM Registered Auditors are eligible to audit financial statements for corporate tax purposes.
For DIFC entities, auditors must be approved by the DFSA. The selection of your audit partner is not merely a procurement decision; it is a compliance decision that affects your ability to satisfy multiple regulatory requirements.
Engage early. The concentration of deadline pressures means that audit capacity is increasingly constrained in the months leading up to filing deadlines.
Documentation Architecture
Your documentation must serve multiple purposes simultaneously. Design your record-keeping systems with this reality in mind.
For QFZP status, you must be able to clearly demonstrate the segregation between qualifying and non-qualifying income. This requires transaction-level documentation that identifies the nature of each revenue stream, the counterparty classification, and the activity categorisation under Ministerial Decision No. 229 of 2025.
Your transfer pricing documentation must satisfy both the substantive requirements of demonstrating arm’s length pricing and the formal requirements for related party disclosures in your corporate tax return. For entities meeting the relevant thresholds, local files and benchmarking studies are mandatory.
Calendar Integration
The dual compliance era requires integrated calendar management. Your ADGM or DIFC filing deadlines do not align with your FTA deadlines. Your Accounting Reference Date drives your Registration Authority timeline; your tax period end drives your FTA timeline.
For most entities, the corporate tax return is due within nine months of the tax period end. If your financial year ends on December 31, your corporate tax return is due by September 30 of the following year. Your ADGM annual accounts filing deadline depends on your Accounting Reference Date and whether you are filing first accounts or subsequent accounts.
Map these deadlines. Build in lead time for audit completion. Recognise that the audit must be completed before either deadline can be met.
Substance Verification
QFZP status requires adequate substance in the free zone. This means qualifying employees, physical presence, and operating expenditure commensurate with the nature of your activities. The FTA will examine whether your substance is genuine or merely nominal.
Review your substance position before your next filing. If you have been operating with minimal presence, consider whether your arrangements genuinely satisfy the core income-generating activities test for your particular business model.
The Strategic Advantage of Early Action
The dual compliance era is not a temporary disruption. This is the new permanent reality for ADGM and DIFC entities operating in the UAE. The regulatory architecture will only become more integrated over time, not less.
Entities that treat this as a burden will find themselves perpetually reactive — scrambling before deadlines, absorbing penalties, and managing regulatory relationships from a position of weakness.
Entities that treat this as an opportunity will recognise something different: that robust compliance infrastructure, clear documentation, and proactive regulatory engagement create competitive advantage. They attract better clients, command premium valuations, and operate with the confidence that comes from knowing their house is in order.
The choice is not whether to comply. The choice is whether to comply well.
ECOVIS JRB is an ADGM-approved and registered audit firm, providing comprehensive audit, tax, and advisory services to entities operating in the UAE’s international financial centres. Our team combines deep technical expertise with practical understanding of the regulatory landscape facing ADGM and DIFC entities.
For guidance on navigating the dual compliance requirements, contact our team now or mail us at info@ecovisjrb.ae
About the Author
This article was prepared by the Tax and Regulatory Advisory team at ECOVIS JRB Chartered Accountants, Dubai. ECOVIS JRB is part of ECOVIS International, a global network of independent tax, accounting, and advisory firms operating in over 90 countries.
Disclaimer: This article provides general information and should not be construed as specific legal or tax advice. Entities should consult with qualified advisors regarding their particular circumstances.
