How to Account for Multi-Currency Transactions in UAE Books

If you run a UAE business, chances are you invoice in USD, pay suppliers in EUR, collect online payments in GBP, and still need your accounting files to make sense in AED. That mix is normal here. However, the accounting can go wrong fast if you don’t follow a clear FX (foreign exchange) policy.

so let’s explain this in simple English – how to process multi-currency transactions correctly, deal with exchange variances and keep yourself straight for VAT and year-end reporting.

1) Start with the right “home currency”: Functional currency vs presentation currency

Before you post a single journal, decide your functional currency (the currency your business mainly operates in). In practice, most UAE businesses use AED in their books, but some businesses (depending on operations) may use another functional currency under accounting standards.

Under IAS 21 (The Effects of Changes in Foreign Exchange Rates), foreign currency transactions are initially recorded by applying the spot exchange rate on the transaction date, and then remeasured based on the item type (monetary vs non-monetary). Get details on Accounting for DPC Companies.

2) Use one consistent exchange-rate source (and document it)

This is where businesses get messy. One team uses bank rates, another uses Google, and month-end revaluation becomes a debate.

For UAE VAT-related obligations, the Central Bank of the UAE publishes daily exchange rates specifically for VAT use.
The UAE FTA also provides guidance on the use of exchange rates for tax purposes.

Best practice FX policy (simple and audit-friendly):

• Use CBUAE rates for VAT conversions (and keep the link/source saved).
• Use a consistent approach for accounting postings (spot rate at transaction time, then month-end revaluation rules).
• Lock a “cut-off time” rule (e.g., rate published for that day).
• Keep evidence of rates used (screenshots, reports, or system logs).

3) Understand the 3 rates you’ll use most often

You’ll mainly deal with:

1. Spot rate (transaction date rate)
   Used when you first record the invoice, bill, receipt, or payment.
2. Closing rate (month-end / year-end rate)
   Used to revalue monetary items such as bank balances, receivables, and payables.
3. Average rate (sometimes allowed for practicality)
   Can be used in limited cases when it approximates actual rates and fluctuations aren’t significant (used more for P&L translation, not for individual invoices). Looking for a Accounting for DIAC Companies?

4) Set up your accounting system the “UAE-friendly” way

To handle multi-currency bookkeeping smoothly, configure:

• Separate bank accounts by currency (USD account, EUR account, etc.)
• Customers and suppliers with currency settings
• A dedicated Foreign Exchange Gain/Loss account (realised + unrealised)
• If you use accounting software , ensure multi-currency module is ON & rates are tracked.

Quick reference table: What gets revalued?

5) How to record foreign currency transactions (with real examples)

Example A: Supplier invoice in USD (Accounts Payable)

Scenario: You receive a supplier bill for USD 10,000 on 10 Jan. Spot rate = 3.6700
You pay it later when the rate is 3.6600.

On invoice date (record the bill):

• Dr Purchases/Expense: 10,000 × 3.6700 = AED 36,700
• Cr Accounts Payable : AED 36,700

On payment date (pay the bill):
Your bank—pays: 10,000 × 3.6600 = AED 36,600

• Dr Accounts—Payable: AED 36,700
• Cr Bank: AED 36,600
• Cr FX Gain (realised): AED 100

Why a gain? Because you settled the same USD liability with fewer dirhams than you originally recorded. Get details on Accounting for IFZA Companies.

Example B: Customer invoice in EUR (Accounts Receivable)

Scenario: You invoice a client EUR 5,000. Spot rate = 4.0000
Client pays later when rate = 4.1000.

On invoice date:

• Dr Accounts Receivable: 5,000 × 4.0000 = AED 20,000
• Cr Revenue: AED 20,000

On receipt date:
You receive: 5,000 × 4.1000 = AED 20,500

• Dr Bank: AED 20,500
• Cr Accounts—Receivable: AED 20,000
• Cr FX Gain (realised): AED 500

6) Month-end revaluation: where many UAE businesses slip

Even if you haven’t paid or collected yet, your USD/EUR receivables and payables must be revalued at month-end if they’re monetary items.

So, at month-end:

• Compare “book value in AED” vs “value at closing rate”
• Post the difference to Unrealised FX Gain/Loss
• Next month, your accounting system will reverse or adjust automatically (depending on setup)

Good habit: Run a monthly FX revaluation report and keep it in your month-end closing folder. Looking for a Accounting for d3 Companies?

7) VAT angle: invoices might be in USD, but VAT reporting is in AED

In the UAE, VAT returns are filed in AED, and foreign-currency amounts must be converted using an accepted method. The Central Bank of the UAE provides “exchange rates against UAE Dirham for VAT-related obligations.”
Also, the UAE FTA has official guidance on exchange-rate use.

8) Corporate Tax angle: keep your currency conversion method consistent

UAE Corporate Tax compliance expects amounts to be determined in AED, and if amounts are in another currency, they need conversion using an acceptable method. The FTA issued Decision No. 13 of 2023 that sets conditions including using a conversion method consistently throughout the Tax Period and keeping supporting records for rates and rationale.

So, even if your accounts are in another currency operationally, you’ll still need a controlled conversion trail for tax work.

Related Articles:

» Accounting for DMC Companies

» Accounting for DAFZ Companies

» Accounting for DSO Companies

» Accounting for DIFC Companies

» Accounting for DWTCA Companies

9) Common mistakes we see (and how to avoid them)

• Mixing exchange rate sources (bank rate sometimes, CBUAE sometimes)
  → Pick one policy and stick to it, then document exceptions.
• Skipping month-end revaluation
  → Your FX gains/losses won’t be accurate, and financials look “too stable” (a red flag).
• Posting FX differences into sales or expenses
  → Keep a clean FX Gain/Loss line—easier for audit and tax review.
• No audit trail for rates used
  → Save rate reports monthly and keep a log of the method.

Need help setting up multi-currency books?

Sharp Accounting can help you implement a clean multi-currency accounting policy, configure your system correctly, and build a monthly closing routine that keeps your UAE reporting tidy (VAT and management reporting included).