Leases are everywhere — offices, vehicles, equipment. Under IFRS 16, all these now appear on the balance sheet, transforming how businesses in the UAE present their financials.
In 2025, understanding IFRS 16 is vital for Corporate Tax filings, audits, and financial transparency.
What IFRS 16 Requires
It replaces the distinction between operating and finance leases.
Now, lessees must recognise:
- Right-of-use (ROU) asset, and
- Lease liability (present value of future lease payments).
Impact on Financial Statements
- Balance Sheet: Assets and liabilities increase.
- Income Statement: Rent expense replaced with depreciation + interest.
- Cash Flow: Lease payments split between operating and financing activities
Why It Matters for UAE Businesses
- Audit Readiness: Auditors review ROU valuations and lease disclosures.
- Corporate Tax: Depreciation and interest under IFRS 16 must match CT rules.
- Free Zones: Audited IFRS-compliant financials required for license renewal.
Implementation Tips
✅ Gather all lease contracts (property, vehicles, equipment).
✅ Calculate lease liability using incremental borrowing rate.
✅ Record ROU assets under it schedule.
✅ Update accounting policies and disclosures.
Common Mistakes
🚫 Still recording operating lease expense instead of ROU asset
🚫 Ignoring variable lease payments
🚫 Missing short-term or low-value exemptions
🚫 Inconsistent treatment between group entities
Audit Considerations
Auditors will verify:
- Discount rates and lease terms
- Transition adjustments
- Accuracy of amortisation and interest schedules
Conclusion
IFRS 16 ensures transparency but adds complexity.
Proper implementation improves audit outcomes and Corporate Tax compliance.
Call to Action
At Advanced AnalytIQ, we assist UAE companies with it implementation, ROU asset valuation, and audit preparation.
👉 Contact us for IFRS compliance support in 2025.