A law firm's books in the UAE must do three things a generic SME ledger does not: keep client money visibly separate from firm income, track unbilled work-in-progress before it becomes revenue, and retain accounting records for at least five years under Federal Decree-Law No. 32 of 2021. Legal services themselves are ordinary standard-rated supplies — 5% VAT — and corporate tax applies at 9% on profits above AED 375,000, so the accounting structure carries real money consequences.
The chart of accounts that fits a law firm
Split the ledger into four blocks from day one: firm income, client/escrow balances, work-in-progress and disbursements. Client and escrow money is held on behalf of clients — never book it as firm income, and reconcile the client account monthly against individual matter balances. Unbilled time sits as WIP until a bill is issued; treating it as revenue early overstates income and creates a corporate-tax timing problem.
VAT on legal services
Legal services are a standard-rated supply of services at 5% VAT under the Federal VAT framework (Federal Decree-Law 8 of 2017, uaelegislation.gov.ae). Bill retainers, hourly work and success fees as they become due, and invoice disbursements such as court fees at cost, recorded in their own ledger line so they can be traced back to the client file.
Corporate tax and the audit question
Law firms are taxed at 9% on taxable income above AED 375,000 and 0% below it (Federal Decree-Law 47 of 2022, uaelegislation.gov.ae). A firm whose revenue exceeds AED 50 million in a tax period must prepare and maintain audited financial statements for Corporate Tax purposes (Ministerial Decision No. 82 of 2023, as amended by Ministerial Decision No. 84 of 2025) — smaller firms still benefit from clean, audit-ready records. Records and documents are kept for seven years after the end of each tax period under Article 56 of the Corporate Tax Law, alongside the Commercial Companies Law's five-year rule.
Law-firm bookkeeping map
| Item | Where it lives | Rule to apply |
|---|---|---|
| Client/escrow funds | Separate client ledger, own bank account | Never firm income; reconcile monthly |
| Retainers & fees | Firm income | 5% VAT when earned; invoice promptly |
| Work-in-progress | WIP schedule per matter | Billed before recognised as revenue |
| Court fees & disbursements | Disbursement ledger | Record at cost, traceable to matter |
| Accounting records | Head office or approved e-copy | Keep at least 5 years (CCL Art. 27); 7 years for CT |
FAQ
What VAT rate applies to legal services in the UAE? 5% — the standard rate for services. There is no reduced or zero rate for legal work.
Do law firms need audited accounts? For Corporate Tax purposes, audited financial statements are mandatory where revenue exceeds AED 50 million in a tax period; many firms also commission audits for bank, insurer or licensing requirements.
How long must a UAE law firm keep its records? At least five years from the end of the financial year under the Commercial Companies Law, and seven years after each tax period under the Corporate Tax Law.
Finanshels provides bookkeeping services and audit services for UAE professional firms — see also bookkeeping for UAE free zone companies.
