What is the difference between a provision and an accrual?

Both recognise costs before payment, but the uncertainty differs. An accrual records an expense whose timing and amount are essentially certain — say, utilities consumed but not yet invoiced. A provision records an obligation whose timing or amount is uncertain and must be estimated, such as a warranty liability. Accruals usually sit within payables on a UAE balance sheet; provisions are presented separately so the reader can see the judgement.

What is the difference between a provision and a contingent liability?

A provision meets all three IAS 37 recognition tests and is recorded in the financial statements. A contingent liability does not — either because the obligation is only possible rather than present, or because the outflow is not probable, or because it cannot be reliably measured. The IFRS Foundation describes contingent liabilities as possible obligations confirmed by uncertain future events; they are disclosed in the notes rather than recognised, unless the possibility of outflow is remote.

What is the journal entry for a provision?

To create or increase a provision, debit the relevant expense account and credit the provision liability account. When the obligation is settled, debit the provision and credit cash or payables. If the estimate falls or the obligation lapses, the excess is released by debiting the provision and crediting the expense line, reversing through profit or loss. A provision may only be used for the expenditure it was originally created for.

Are provisions deductible for UAE corporate tax?

Article 20(1) of Federal Decree-Law No. 47 of 2022 determines taxable income from standalone financial statements prepared under accounting standards accepted in the State, and Article 20(2) starts from accounting income before listed adjustments. A properly recognised provision therefore feeds the starting point. Article 28(1) then requires expenditure to be incurred wholly and exclusively for the business and not capital in nature, and Article 33 blocks specific items outright. Take advice on material provisions.

Which accounting standards must a UAE taxable person apply?

Article 4(1) of Ministerial Decision No. 114 of 2023 requires a taxable person to apply International Financial Reporting Standards. Article 4(2) permits a taxable person whose revenue does not exceed AED 50,000,000 to apply IFRS for SMEs instead. Article 2 allows the cash basis of accounting where revenue does not exceed AED 3,000,000, or in exceptional circumstances on application to the Federal Tax Authority.

Can I claim VAT back on a bad debt provision in the UAE?

Merely providing against a doubtful debt is not enough. Article 64(1) of Federal Decree-Law No. 8 of 2017 lets a registrant supplier reduce output tax only where the goods or services were supplied and the due tax charged and paid, the consideration has been written off in full or part as a bad debt in the supplier's accounts, more than six months has passed from the date of supply, and the recipient has been notified of the amount written off.

Does the customer have to do anything under the VAT bad debt rules?

Yes. Article 64(2) of Federal Decree-Law No. 8 of 2017 requires a registrant recipient to reduce its recoverable input tax where the supplier has reduced its output tax and notified the recipient, the recipient received the goods or services and deducted the input tax, and the consideration has gone unpaid in full or part for over six months. It is a matching adjustment, not a one-sided relief for the seller.

Can I provide for future operating losses?

No. The IFRS Foundation is explicit that future operating losses cannot be provisioned because no present obligation exists. Expecting a difficult year is not an obligating event. The related concept that does create a provision is an onerous contract, where the unavoidable costs of meeting an existing contract exceed the benefits expected from it — there the obligation already exists because the contract was already signed.

When can a UAE business recognise a restructuring provision?

Under IAS 37 a restructuring provision arises only once a constructive obligation exists, which the IFRS Foundation ties to publicly announcing a detailed restructuring plan. A board decision recorded in the minutes does not by itself create the obligation, because nobody outside the room has been given a valid expectation that the plan will be carried out. For UAE businesses this usually means the announcement date, not the approval date.

Is a bad debt provision the same as a provision under IAS 37?

No, despite the name. Doubtful trade receivables are impaired under the expected credit loss model in IFRS 9, which produces a loss allowance reducing the carrying amount of the asset. IAS 37 deals with liabilities of uncertain timing or amount. The label survives from older bookkeeping practice, but the disclosures, the measurement model and the UAE VAT consequences all differ, so keep the two apart in your working papers.

How long must I keep the papers behind a provision?

Article 56(1) of Federal Decree-Law No. 47 of 2022 requires a taxable person to keep, for seven years after the end of the relevant tax period, all records and documents that support the information in a tax return and that let the FTA readily ascertain taxable income. A provision calculation is exactly that kind of record. Separate retention rules under the Tax Procedures regime apply to VAT and excise, so check which regime you mean.

Do provisions need to be in audited financial statements?

It depends on the taxable person. Ministerial Decision No. 84 of 2025, which applies to tax periods commencing on or after 1 January 2025, requires audited financial statements for a taxable person that is not a tax group with revenue exceeding AED 50,000,000, and for every Qualifying Free Zone Person regardless of revenue. A tax group prepares audited special purpose financial statements in the form the FTA specifies. Article 54(2) of the Corporate Tax Law is the enabling power.

What should a provision working paper contain?

In our practice, four things: the obligating past event described in a sentence a stranger could follow; the basis of estimate and the underlying data; the arithmetic itself; and the movement for the year showing the opening balance, additions, amounts used, amounts released and the closing balance. That schedule is what an auditor tests and what supports the figure if the FTA asks how taxable income was arrived at.

What Is a Provision in Accounting? UAE IAS 37 Guide

Key takeaways

A provision is recognised as an expense and a liability before the cash leaves — the accounting answer to obligations that are real but not yet billed.
IAS 37 sets three recognition tests: a present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount.
A provision is not a contingent liability (disclosed, not booked), not an accrual (near-certain timing and amount), and not a reserve (an equity appropriation).
Common UAE provisions include end-of-service gratuity, warranty obligations, onerous contracts and legal claims — while 'bad debt provisions' are technically IFRS 9 impairment allowances.
UAE corporate tax starts from accounting income under Article 20, and VAT bad debt relief under Article 64 needs a real write-off plus six months since the supply.
Article 56 of the Corporate Tax Law makes you keep the papers behind every estimate for seven years after the tax period.

Every set of UAE accounts contains costs the business has not been billed for yet. Some are routine — the utilities accrual, the unpaid salaries. The harder ones are obligations whose timing or amount nobody knows yet: what this year’s warranty claims will cost, what a legal dispute will settle for, what an employee’s end-of-service gratuity will be when they eventually leave.

The accounting answer to those is the provision, and it is one of the most misused words in UAE bookkeeping. Since the FTA began assessing corporate tax returns, the word carries a cost when it is used loosely. This guide covers what a provision in accounting actually is, the IAS 37 rules for when you may and may not recognise one, the journal entries, the provisions UAE businesses most commonly need, and how corporate tax and VAT treat them.

What a provision is

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision is a liability of uncertain timing or amount. The obligation itself is real. It may be a legal obligation arising from a contract, a UAE federal law or a court claim, or a constructive obligation created where the entity’s own actions have led others to expect it will accept certain responsibilities. What is uncertain is when it will be settled, or for how much.

That definition does a lot of work. It separates a provision from three neighbours that UAE bookkeepers routinely confuse it with, and the distinction is not cosmetic — each one lands in a different place in the financial statements, and each one has a different consequence for a UAE corporate tax return.

Table 1 — A provision and its neighbours. Definitions of provisions, contingent liabilities and contingent assets in this table were read from the IFRS Foundation’s IAS 37 standard page on 4 August 2026. The payables and reserves rows describe general practice rather than a quoted standard.

Item	What it is	Where it appears
Trade payable	Invoiced, certain and due	Recognised as a liability
Accrual	Goods or services already received, timing and amount essentially certain, not yet invoiced	Recognised, usually within payables
Provision	A liability of uncertain timing or amount	Recognised and presented separately
Contingent liability	A possible obligation confirmed by uncertain future events, or a present one failing the probability or measurement test	Disclosed in the notes, not recognised, unless outflow is remote
Contingent asset	A possible asset confirmed by uncertain future events	Disclosed where inflow is probable, never recognised
Reserve	An appropriation of equity, such as retained earnings set aside — including a statutory reserve under UAE company law	Equity, not a liability at all

Older UAE bookkeeping habits call provisions “reserves” and vice versa. IFRS keeps them strictly apart, and so should the chart of accounts in any UAE ledger, because a reserve movement never touches profit while a provision movement always does — and only the profit line reaches the FTA.

The three recognition tests

IAS 37 permits a provision only when all three of the following are met, and the IFRS Foundation frames the probability limb directly: an entity recognises a provision if it is probable that an outflow of cash or other economic resources will be required to settle it.

Table 2 — The IAS 37 recognition tests. Each row was read from the IFRS Foundation’s IAS 37 standard page on 4 August 2026.

Test	What it means in practice
A present obligation exists from a past event	Something has already happened — the obligating event — leaving no realistic alternative to settling. Legal or constructive
An outflow of resources is probable	More likely than not that settling the obligation costs you something
The amount can be reliably estimated	The inability to estimate is treated as genuinely rare; “we do not know exactly” is what estimation is for

Fail any test and the item is, at most, a contingent liability in the notes of the UAE financial statements. One prohibition is explicit and worth stating on its own: there are no provisions for future operating losses. Expecting a bad year is not an obligation, because nothing has happened yet that binds you to those losses.

[[chart:provision-decision]]

Measurement: the best estimate

A provision is measured at the amount the entity would rationally pay to settle the obligation at the end of the reporting period, or to transfer it to a third party at that time. Risks and uncertainties feed the estimate, and provisions are discounted to present value where the effect of the time value of money is material, with the discount unwinding through profit or loss as settlement approaches.

Estimates are revisited at every reporting date, and amounts no longer required are released back through profit or loss. For a UAE business filing an annual FTA corporate tax return, that re-measurement is not an optional tidy-up — it is the difference between a defensible taxable income figure and a stale one.

For a large population of similar obligations, such as warranty claims across thousands of units, the estimate weights the possible outcomes into an expected value. For a single obligation, such as one lawsuit before a Dubai court, the most likely outcome is usually the anchor.

The journal entries

The mechanics are short and identical in any UAE ledger. The judgement is everything.

Table 3 — Provision journal entries.

Event	Debit	Credit
Create or increase the provision	Relevant expense account	Provision (liability)
Settle the obligation	Provision	Cash or trade payables
Actual cost exceeds the provision	Expense (the shortfall)	Cash or trade payables
Release an amount no longer required	Provision	The original expense line
Unwind discounting where material	Finance cost	Provision

A provision file should record, for each item, the obligating event, the basis of estimate, the calculation, and the movement in the year. That schedule is what an auditor tests and what supports the figure if the FTA asks how taxable income was arrived at — the same discipline we apply to year-end audit preparation.

The provisions UAE businesses actually book

End-of-service gratuity. The most universal UAE provision, and the one a Dubai or Abu Dhabi audit will always ask about first. Every eligible employee accrues an end-of-service benefit under the UAE Labour Law and the liability builds with each year of service even though it is paid only on exit — uncertain timing, estimable amount, a textbook provision. Books that show no gratuity liability despite years-old staff understate liabilities and overstate past profits.

Warranty and after-sales obligations. Retailers, contractors and equipment suppliers in the UAE who promise to repair or replace have a legal or constructive obligation the moment they sell. The estimate comes from UAE claims history and is re-measured annually.

Onerous contracts. Where the unavoidable costs of meeting a contract exceed the benefits expected from it — a fixed-price project going underwater, Dubai premises you are locked into but no longer use — IAS 37 requires a provision. Contractors should read this alongside the wider discipline of construction accounting.

Legal claims and disputes. Provided when a present obligation is probable and estimable, and disclosed as a contingent liability when merely possible. That classification decides whether the number hits profit, which is why it deserves more than a one-line memo in a UAE file.

Restructuring. Recognised only once a constructive obligation exists, which the IFRS Foundation ties to the public announcement of a detailed restructuring plan. A board minute alone does not create it.

Table 4 — Common UAE provisions and their obligating event. The obligating-event column reflects our own analysis under IAS 37, not quoted text from the standard.

Provision	Obligating event	Usual estimate basis
End-of-service gratuity	Each completed period of qualifying service under the UAE Labour Law	Statutory formula applied to current basic salary
Product warranty	The sale that carried the warranty promise	Claims history across the population of units
Onerous contract	Signing a contract whose unavoidable costs now exceed its benefits	Lower of the cost of fulfilling and the cost of exiting
Legal claim	The act or omission being claimed against	Most likely outcome, informed by counsel
Restructuring	Public announcement of a detailed plan creating valid expectations	Direct expenditure arising from the restructuring
Site restoration or make-good	Taking occupation under a UAE lease requiring reinstatement	Contractor quotation in AED, discounted where material

Which accounting standards a UAE taxable person must apply

Provisions only mean something if the framework producing them is the one UAE law recognises. Article 20(1) of Federal Decree-Law No. 47 of 2022 requires taxable income to be determined on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State. Ministerial Decision No. 114 of 2023 then says which standards those are.

Table 5 — Accounting standards and methods for UAE corporate tax. Every row below was read from the English text of Ministerial Decision No. 114 of 2023, Articles 2 and 4, on 4 August 2026.

Situation	Basis permitted
Default for every taxable person	International Financial Reporting Standards (Article 4(1))
Revenue not exceeding AED 50,000,000	May apply IFRS for SMEs (Article 4(2))
Revenue not exceeding AED 3,000,000	May prepare financial statements on the cash basis (Article 2(1))
Exceptional circumstances	Cash basis on application to the FTA (Article 2(2))

The cash-basis option matters for provisions in a way that catches small UAE businesses out. A business preparing accounts on the cash basis recognises income and expenditure when cash is received and paid, which is the definition Article 1 of the same Decision gives. There is no provision in a cash-basis set of UAE accounts, because there is no accrual to make. If you want the tax effect of a gratuity or warranty obligation, you need accrual accounts.

Article 20(6) of the Corporate Tax Law lets a taxable person apply to the FTA to change from the cash basis to the accrual basis, either from the start of the tax period in which the application is made or from a future period. Our guide to cash versus accrual accounting for UAE corporate tax works the choice through.

What provisions mean for UAE corporate tax

Article 20(2) makes taxable income for a tax period the accounting income for that period, adjusted to the extent applicable for a listed set of items. A properly recognised provision therefore reduces the starting point for UAE taxable income in the year it is expensed, and a released provision increases it, subject to those adjustments.

Table 6 — Adjustments to accounting income under Article 20(2). Every row below was read from the English text of Federal Decree-Law No. 47 of 2022, Article 20(2), on 4 August 2026.

Paragraph	Adjustment
(a)	Any unrealised gain or loss under Article 20(3)
(b)	Exempt income as specified in Chapter Seven
(c)	Reliefs as specified in Chapter Eight
(d)	Deductions as specified in Chapter Nine
(e)	Transactions with Related Parties and Connected Persons under Chapter Ten
(f)	Tax loss relief as specified in Chapter Eleven
(g)	Incentives or special reliefs for a Qualifying Business Activity set by Cabinet decision
(h)	Income or expenditure not otherwise taken into account, as specified by Cabinet decision
(i)	Any other adjustments as may be specified by the Minister

The deduction rules in Chapter Nine are where a UAE provision is actually tested by the FTA. Article 28(1) allows expenditure incurred wholly and exclusively for the purposes of the taxable person’s business that is not capital in nature, deductible in the tax period in which it is incurred. Article 28(2) then blocks expenditure not incurred for the business, expenditure incurred in deriving exempt income, and losses not connected with the business.

Table 7 — Non-deductible expenditure under Article 33. Every row below was read from the English text of Federal Decree-Law No. 47 of 2022, Article 33, on 4 August 2026.

No deduction is allowed for
Donations, grants or gifts to an entity that is not a Qualifying Public Benefit Entity
Fines and penalties, other than compensation for damages or breach of contract
Bribes or other illicit payments
Dividends, profit distributions or similar benefits paid to an owner of the taxable person
Amounts withdrawn from the business by a natural person taxable under Article 11(3)(c) or a partner in an unincorporated partnership
Corporate tax imposed under the Decree-Law itself
Input VAT recoverable under Federal Decree-Law No. 8 of 2017
Tax on income imposed on the taxable person outside the State
Such other expenditure as specified by Cabinet decision

That list has a direct bearing on provisioning. A provision for an expected UAE regulatory fine sits behind Article 33(2) and will not be deductible, however correctly it is recognised under IAS 37. A provision for compensation for breach of contract is treated differently by the same clause. Two obligations that look alike on a UAE balance sheet can land on opposite sides of the deduction line, which is why the provision file has to say what the obligation actually is.

Two practical consequences follow for any UAE business. First, provision quality is now tax quality — an unsupported provision does not just risk an audit adjustment, it misstates taxable income. Over-provide and you understate the tax; under-provide and you overpay it. Second, releases are income. A provision released because the obligation lapsed flows back through profit and into the UAE corporate tax starting point in the year of release, where the FTA can see it.

Article 20(7) settles any argument about which framework wins. In the case of conflict between the Decree-Law and the applicable accounting standards, the Decree-Law prevails to that extent. The interaction between accounting estimates and taxable income is covered further in our guides to taxable income and deductions and the financial statements the FTA expects behind a return.

3 tests

Present obligation from a past event, probable outflow, reliable estimate — all three must be met before IAS 37 allows a provision

Source: IAS 37, IFRS Foundation

The realisation basis election and fair-value swings

Article 20(3) gives a taxable person preparing accounts on an accrual basis an election to take gains and losses into account on a realisation basis, subject to conditions the Minister may prescribe. The election covers either all assets and liabilities subject to fair value or impairment accounting, or all assets and liabilities held on capital account at the end of a tax period.

Article 20(4)(b) defines liabilities held on capital account as liabilities the incurring of which does not give rise to deductible expenditure under Chapter Nine, or liabilities treated under the applicable accounting standards as non-current liabilities. A long-dated provision — site restoration, a multi-year gratuity liability — can therefore fall inside the scope of the election, which is precisely why a UAE business should model the election before making it rather than after.

Table 8 — Article 20(3) realisation basis, at a glance. Every row below was read from the English text of Federal Decree-Law No. 47 of 2022, Article 20(3) and 20(4), on 4 August 2026.

Point	Rule
Who can elect	A taxable person that prepares financial statements on an accrual basis
Option (a)	All assets and liabilities subject to fair value or impairment accounting
Option (b)	All assets and liabilities held on capital account at period end, while taking unrealised gains and losses on revenue account into account
Capital-account liabilities	Liabilities not giving rise to deductible expenditure under Chapter Nine, or treated as non-current under the accounting standards
Unrealised gain or loss	Includes an unrealised foreign exchange gain or loss

VAT and bad debts: the six-month rule

Impairing a receivable in the books does not adjust the UAE VAT you already paid to the FTA on the sale. Bad debt relief under Article 64 of Federal Decree-Law No. 8 of 2017 allows a registrant supplier to reduce output tax only when four conditions are met together.

Table 9 — VAT bad debt relief conditions. Every row below was read from the English text of Federal Decree-Law No. 8 of 2017, Article 64(1) and 64(2), as published by the Ministry of Finance, on 4 August 2026.

Party	Condition
Supplier	Goods and services have been supplied and the due tax charged and paid
Supplier	Consideration written off in full or part as a bad debt in the supplier’s accounts
Supplier	More than six months has passed from the date of the supply
Supplier	The recipient has been notified of the amount of consideration written off
Recipient	The supplier reduced its output tax and the recipient received the notification
Recipient	The recipient received the goods or services and deducted the input tax charged
Recipient	The consideration has gone unpaid in full or part for over six months

The sequencing point trips UAE businesses constantly. An expected credit loss allowance is not a write-off. The VAT relief follows the actual accounting write-off plus the other conditions, so the receivables ledger, the ECL allowance and the VAT adjustment each move at their own moment, and the working papers need to show all three. The mechanics, evidence and return boxes are unpacked in our dedicated guide to VAT bad debt relief.

[[chart:provision-vs-neighbours]]

Audit, records and how long you keep the workings

Article 54(2) of the Corporate Tax Law empowers the Minister to require categories of taxable persons to prepare and maintain audited or certified financial statements. Ministerial Decision No. 84 of 2025, which applies to tax periods commencing on or after 1 January 2025, exercises that power.

Table 10 — Who needs audited financial statements. Every row below was read from the English text of Ministerial Decision No. 84 of 2025, Article 2, on 4 August 2026.

Taxable person	Requirement
A taxable person that is not a tax group, with revenue exceeding AED 50,000,000 in the tax period	Audited financial statements
A Qualifying Free Zone Person	Audited financial statements, regardless of revenue
A tax group	Audited special purpose financial statements in the form the FTA specifies

UAE retention rules then close the loop. Article 56(1) of Federal Decree-Law No. 47 of 2022 requires a taxable person to maintain, for seven years following the end of the tax period to which they relate, all records and documents that support the information provided in a tax return and that enable taxable income to be readily ascertained by the FTA. Article 56(2) imposes the same seven-year period on an exempt person for records evidencing its status.

Note which regime that is. The seven-year corporate tax rule sits in the Corporate Tax Law itself and is expressed to apply notwithstanding the Tax Procedures Law. The Tax Procedures retention regime, which governs VAT and excise records, runs on a different schedule with its own extensions. Saying “seven years” without naming the regime is how UAE businesses in Dubai and Sharjah end up destroying the wrong file.

Building a provision schedule that survives review

A provision is only as good as the paper behind it. The controls below are our own working practice at Velmont Crest rather than a statutory checklist, and they are marked as such.

Table 11 — Provision file contents (Velmont Crest practice, not a legal requirement).

Element	What it proves
The obligating event, in one plain sentence	That a past event exists and the IAS 37 first test is met
Evidence of the obligation	Contract, claim letter, statutory rule, public announcement
Basis of estimate and source data	That the amount can be reliably estimated
The calculation itself	That the number in the ledger can be reproduced
Discount rate and unwinding, where used	That material time value has been handled
Movement schedule: opening, additions, used, released, closing	That the provision was used only for its purpose
UAE corporate tax treatment note	Whether Article 28 or Article 33 affects deductibility

Run that schedule monthly rather than annually and the UAE year-end becomes a review instead of a reconstruction. A UAE business that only assembles provision support in the fortnight before an audit is deciding its taxable income under time pressure, which is the worst possible condition for judgement.

Where this leaves you

Provisions are the part of the balance sheet that runs on judgement, and judgement needs paperwork. The test for every line is the same. Name the past event, show the estimate, use the provision only for what it was created for, and re-measure it every reporting date.

Do that and the accounts state what the business truly owes, and the UAE corporate tax return filed with the FTA inherits a number that can be defended under Article 20 rather than argued about. Skip it and you are carrying an unquantified risk into a filing that Article 56 says you must be able to support for seven years.

Our accounting and bookkeeping team builds and maintains provision schedules — gratuity, warranties, disputes, onerous contracts — that reconcile to the ledger and stand up to audit. Our audit assistance team prepares the estimate support auditors test hardest, and our corporate tax team makes sure provisions and releases flow correctly into the return. Not sure what your balance sheet should be providing for? Get a quote and we will review it.

Disclaimer: This article is published by Velmont Crest, a DED-licensed UAE accounting firm. We are not a tax agent, an FTA-registered representative, or a licensed audit or legal services firm. The content above is general information about provisions in accounting and their UAE corporate tax and VAT context, and does not constitute accounting, tax, legal or financial advice. The treatment of any specific obligation depends on its facts and on the applicable legislation, Cabinet and Ministerial Decisions and Federal Tax Authority guidance — take advice on your own position.

References

Velmont view

Provisions are where UAE SME books most often drift from reality — in both directions. We see balance sheets with no gratuity provision at all, years after the first employee joined, and we see 'provisions' used as a profit-smoothing dial, topped up in good years and released in bad ones. Both fail the same test, because IAS 37 recognises obligations rather than intentions. Our rule for clients is simple. Every provision on the balance sheet must name its past event, show its estimate basis, and survive the question 'could you refuse to pay this?' If the answer is yes, it is not a provision. Getting this right is no longer just good bookkeeping. Article 20 of the UAE Corporate Tax Law starts taxable income from accounting income, so an over-provided balance sheet understates tax and an under-provided one overpays it.

— Velmont Crest editorial

Frequently asked questions

What is a provision in accounting?: A provision is a liability of uncertain timing or amount. It is recognised on the balance sheet, with a matching expense in profit or loss, when a business has a present obligation — legal or constructive — arising from a past event, it is probable that settling it will require an outflow of resources, and the amount can be reliably estimated. Typical UAE examples are end-of-service gratuity, warranty obligations and pending legal claims.
What is the difference between a provision and an accrual?: Both recognise costs before payment, but the uncertainty differs. An accrual records an expense whose timing and amount are essentially certain — say, utilities consumed but not yet invoiced. A provision records an obligation whose timing or amount is uncertain and must be estimated, such as a warranty liability. Accruals usually sit within payables on a UAE balance sheet; provisions are presented separately so the reader can see the judgement.
What is the difference between a provision and a contingent liability?: A provision meets all three IAS 37 recognition tests and is recorded in the financial statements. A contingent liability does not — either because the obligation is only possible rather than present, or because the outflow is not probable, or because it cannot be reliably measured. The IFRS Foundation describes contingent liabilities as possible obligations confirmed by uncertain future events; they are disclosed in the notes rather than recognised, unless the possibility of outflow is remote.
What is the journal entry for a provision?: To create or increase a provision, debit the relevant expense account and credit the provision liability account. When the obligation is settled, debit the provision and credit cash or payables. If the estimate falls or the obligation lapses, the excess is released by debiting the provision and crediting the expense line, reversing through profit or loss. A provision may only be used for the expenditure it was originally created for.
Are provisions deductible for UAE corporate tax?: Article 20(1) of Federal Decree-Law No. 47 of 2022 determines taxable income from standalone financial statements prepared under accounting standards accepted in the State, and Article 20(2) starts from accounting income before listed adjustments. A properly recognised provision therefore feeds the starting point. Article 28(1) then requires expenditure to be incurred wholly and exclusively for the business and not capital in nature, and Article 33 blocks specific items outright. Take advice on material provisions.
Which accounting standards must a UAE taxable person apply?: Article 4(1) of Ministerial Decision No. 114 of 2023 requires a taxable person to apply International Financial Reporting Standards. Article 4(2) permits a taxable person whose revenue does not exceed AED 50,000,000 to apply IFRS for SMEs instead. Article 2 allows the cash basis of accounting where revenue does not exceed AED 3,000,000, or in exceptional circumstances on application to the Federal Tax Authority.
Can I claim VAT back on a bad debt provision in the UAE?: Merely providing against a doubtful debt is not enough. Article 64(1) of Federal Decree-Law No. 8 of 2017 lets a registrant supplier reduce output tax only where the goods or services were supplied and the due tax charged and paid, the consideration has been written off in full or part as a bad debt in the supplier's accounts, more than six months has passed from the date of supply, and the recipient has been notified of the amount written off.
Does the customer have to do anything under the VAT bad debt rules?: Yes. Article 64(2) of Federal Decree-Law No. 8 of 2017 requires a registrant recipient to reduce its recoverable input tax where the supplier has reduced its output tax and notified the recipient, the recipient received the goods or services and deducted the input tax, and the consideration has gone unpaid in full or part for over six months. It is a matching adjustment, not a one-sided relief for the seller.
Can I provide for future operating losses?: No. The IFRS Foundation is explicit that future operating losses cannot be provisioned because no present obligation exists. Expecting a difficult year is not an obligating event. The related concept that does create a provision is an onerous contract, where the unavoidable costs of meeting an existing contract exceed the benefits expected from it — there the obligation already exists because the contract was already signed.
When can a UAE business recognise a restructuring provision?: Under IAS 37 a restructuring provision arises only once a constructive obligation exists, which the IFRS Foundation ties to publicly announcing a detailed restructuring plan. A board decision recorded in the minutes does not by itself create the obligation, because nobody outside the room has been given a valid expectation that the plan will be carried out. For UAE businesses this usually means the announcement date, not the approval date.
Is a bad debt provision the same as a provision under IAS 37?: No, despite the name. Doubtful trade receivables are impaired under the expected credit loss model in IFRS 9, which produces a loss allowance reducing the carrying amount of the asset. IAS 37 deals with liabilities of uncertain timing or amount. The label survives from older bookkeeping practice, but the disclosures, the measurement model and the UAE VAT consequences all differ, so keep the two apart in your working papers.
How long must I keep the papers behind a provision?: Article 56(1) of Federal Decree-Law No. 47 of 2022 requires a taxable person to keep, for seven years after the end of the relevant tax period, all records and documents that support the information in a tax return and that let the FTA readily ascertain taxable income. A provision calculation is exactly that kind of record. Separate retention rules under the Tax Procedures regime apply to VAT and excise, so check which regime you mean.
Do provisions need to be in audited financial statements?: It depends on the taxable person. Ministerial Decision No. 84 of 2025, which applies to tax periods commencing on or after 1 January 2025, requires audited financial statements for a taxable person that is not a tax group with revenue exceeding AED 50,000,000, and for every Qualifying Free Zone Person regardless of revenue. A tax group prepares audited special purpose financial statements in the form the FTA specifies. Article 54(2) of the Corporate Tax Law is the enabling power.
What should a provision working paper contain?: In our practice, four things: the obligating past event described in a sentence a stranger could follow; the basis of estimate and the underlying data; the arithmetic itself; and the movement for the year showing the opening balance, additions, amounts used, amounts released and the closing balance. That schedule is what an auditor tests and what supports the figure if the FTA asks how taxable income was arrived at.

Filed under: Provisions, IAS 37, Journal Entries, Corporate Tax, Bookkeeping

Published 30 July 2026 · Updated 4 August 2026

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