IFRS 16 (as mandated by SCA / DFSA / ADGM)

IFRS 16 Lease Calculator
United Arab Emirates

IFRS 16 lease calculator with United Arab Emirates-specific regulatory context, Securities and Commodities Authority (SCA) / Dubai Financial Services Authority (DFSA) expectations, and local inspection findings.

Lease Terms

If checked, ROU asset depreciates over useful life instead of lease term (IFRS 16.32)

IFRS 16 Lease Audit Working Paper Template & Checklist — free PDF

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IFRS 16.26 — At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date.

IFRS 16.23–24 — At the commencement date, a lessee shall measure the right-of-use asset at cost.

ISA 500 — Sufficient appropriate audit evidence for the lease liability as independent audit evidence.

ISA 540 — Auditing accounting estimates — applies to the IBR determination and lease term judgment.

IFRS 16 in United Arab Emirates — IFRS 16 (as mandated by SCA / DFSA / ADGM)

The United Arab Emirates mandates IFRS for listed companies through the Securities and Commodities Authority (SCA) and for entities within the Dubai International Financial Centre (DIFC) through the Dubai Financial Services Authority (DFSA). Abu Dhabi Global Market (ADGM) entities also follow IFRS. IFRS 16 has been applicable since 1 January 2019. The UAE's lease landscape is characterised by short-term lease structures (particularly in Dubai, where one-year leases with annual renewal are common), limited tenant protection compared to European jurisdictions, and the absence of corporate income tax (until the introduction of federal corporate tax from June 2023).

Regulatory Context — Securities and Commodities Authority (SCA) / Dubai Financial Services Authority (DFSA)

The SCA has mandated IFRS adoption for entities listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM). The DFSA requires IFRS for authorised firms within the DIFC. Regulatory focus on IFRS 16 has been less prescriptive than in European jurisdictions, but both the SCA and DFSA expect high-quality IFRS-compliant financial reporting. The UAE does not have a local accounting standard — IFRS is applied directly as issued by the IASB.

Practical Guidance for United Arab Emirates

For UAE entities, the IBR should reference AED market rates. The AED is pegged to the US dollar (1 USD = 3.6725 AED), so USD interest rates (SOFR, US Treasury yields) provide the base risk-free rate, adjusted for the AED-specific term premium and entity credit spread. For entities in Dubai, the Real Estate Regulatory Agency (RERA) governs residential leases through the Dubai Rental Law (Law No. 26 of 2007), which provides some tenant protections including rent increase limits. Commercial leases have fewer statutory protections, and one-year renewable leases are the market standard.

Audit Expectations

UAE audit firms registered with the SCA or DFSA follow ISA. Given the shorter average lease terms in the UAE compared to European markets, the IFRS 16 impact on UAE balance sheets is generally smaller. However, for entities with significant long-term leases (industrial facilities, land leases in free zones, master lease agreements), the calculations can be material. Auditors should focus on lease identification completeness and the assessment of renewal options for renewable leases.

United Arab Emirates-Specific Considerations

The introduction of UAE federal corporate income tax (effective for financial years starting on or after 1 June 2023, at a rate of 9% on taxable income exceeding AED 375,000) has created new considerations for IFRS 16. Under the corporate tax law, deductions are generally based on the accounting treatment in the financial statements. This means IFRS 16 depreciation and interest expense may form the deductible amounts rather than lease payments, though the implementing regulations may provide specific guidance. Free zone entities (which may benefit from 0% tax under qualifying conditions) should assess whether IFRS 16 treatment affects their qualifying income calculations.

Common Inspection Findings

IBR not appropriately benchmarked to AED/USD market rates

Short-term renewable lease assessment not documented — potential understatement of lease term

Free zone long-term land leases not identified in lease population

New corporate tax interaction with IFRS 16 not considered in deferred tax calculations

RERA rent cap regulations not reflected in lease payment projections

Frequently Asked Questions — United Arab Emirates

Does the UAE have its own accounting standards?
No. The UAE has adopted IFRS directly for listed entities and regulated firms. There is no separate UAE GAAP. IFRS 16 as issued by the IASB applies without modification. For SMEs not subject to SCA or DFSA requirements, IFRS for SMEs may be applied, which has its own simplified lease accounting.
How does the AED-USD peg affect IFRS 16 discount rates?
The AED peg to USD means that AED interest rates closely track USD rates plus a small term premium. For AED-denominated leases, use AED deposit or borrowing rates as the IBR reference. For USD-denominated leases (common in the DIFC), use USD SOFR-based rates. The peg eliminates foreign exchange risk between AED and USD for lease liability translation.
How do UAE free zone leases work under IFRS 16?
Free zone authorities (JAFZA, DAFZA, DMCC, etc.) typically offer long-term land leases (30–50 years) to companies operating within the zone. These are standard IFRS 16 leases — measure the liability at the present value of lease payments. The lease term is the full contractual term unless the entity has an exercisable termination option and is reasonably certain to use it. Long-term free zone land leases create significant ROU assets.
How does the new UAE corporate tax interact with IFRS 16?
Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), taxable income is generally based on accounting profit. IFRS 16 depreciation and interest expense should be deductible in computing taxable income. However, entities should monitor the implementing regulations and ministerial decisions for any specific adjustments to the IFRS 16 treatment for tax purposes. Free zone qualifying entities should assess the impact on qualifying income.
What lease term should I use for a 1-year renewable Dubai office lease?
Assess whether you are reasonably certain to renew (IFRS 16.18–19). Consider: fit-out investment, location importance, relocation costs, historical renewal patterns, and alternative availability. If the entity has made significant fit-out investment and routinely renews, the lease term may extend beyond one year. If genuinely short-term with no significant relocation costs, the one-year term (plus any short-term exemption) may be appropriate.

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