Currency Risk for UAE IT Businesses Billing in USD or EUR

The Accounting Treatment of Foreign Currency Transactions

Under accepted accounting standards, foreign currency transactions must be recorded in your functional currency — which for a UAE company is typically AED — at the exchange rate prevailing on the date of the transaction.

When payment is subsequently received at a different exchange rate, the difference between the rate used to record the invoice and the rate at which the payment is converted creates a foreign exchange gain or loss. This gain or loss must be recognised in your Profit and Loss statement for the period in which the payment is received.

For VAT purposes, the FTA requires that the VAT amount on any invoice issued in a foreign currency be converted to AED using the exchange rate published by the UAE Central Bank on the date of supply.

Practical Strategies for Managing Currency Risk

Invoicing in USD wherever possible is the simplest and most effective strategy for a UAE business, given the AED-USD peg.

For clients who require EUR or GBP invoices, shortening payment terms — requesting payment within 14 days rather than 30 or 60 — reduces the window during which exchange rate movements can erode the value of the receivable.

Some businesses build a currency buffer into their pricing for non-USD clients, effectively pricing the foreign exchange risk into the fee.

Maintaining a foreign currency bank account — receiving EUR or GBP payments directly without immediate conversion — allows the business to accumulate a balance in that currency and convert at a time when the rate is more favourable.

The Accounting Records Requirement

Regardless of the currency management strategy adopted, your accounting records must accurately reflect every foreign currency transaction, the exchange rate applied, and any resulting foreign exchange gains or losses. Foreign exchange gains are generally taxable income and foreign exchange losses may be deductible.

Conclusion

Multi-currency billing is a strength of a UAE IT business with an international client base. Managing the associated currency risk with clear processes, appropriate payment terms, and accurate accounting records ensures that the financial benefits of that international reach are not eroded by avoidable exchange rate losses.

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