What Are the Steps for Preparing Accounting and Bookkeeping for UAE Corporate Taxes?

Companies must keep their books of accounts for at least five or more years after the end of each financial year under the Federal Trade Companies Law of the United Arab Emirates. Legal action can be taken against a business operating in the UAE with books found to be inaccurate or if it fails to keep its books for the required period. Accounting and bookkeeping requirements are essential elements of the new UAE corporate tax.

IS IT MANDATORY TO KEEP FINANCIAL STATEMENTS UNDER UAE CORPORATE TAX?

UAE companies subject to Corporate Tax UAE rates should prepare their financial statements following international reporting standards or standards approved in their region. For example, a mainland business can use internationally accepted accounting practices and standards, including GAAP and International Financial Reporting Standards (IFRS).

However, entities in the free zone must follow the standards set by the free zone authority for corporate tax purposes. For example, companies registered in the DMCC (Dubai Multi-Commodity Center) free zone are only allowed to prepare financial statements by the regulations of the designated free zone authority. In the case of auditing financial statements for corporate tax purposes, mainland companies such as limited liability companies or public or private joint stock companies are required to perform financial audits.

 To maintain reliable financial records by IFRS (International Financial Reporting Standards) and other laws accepted by the UAE, businesses in the UAE need the help of licensed public accountants and certification. 

WHAT IS A TAX RETURN?

Businesses typically have to file three main types of tax returns.

• SALES TAX:

This is a tax that you may need to add to your price. The government wants you to collect this money on their behalf and deposit it at certain times.

• INCOME TAX:

This is calculated according to your profit.

• TAX RELATED TO PERSONNEL:

You must withhold income tax from the employee’s salary and submit it to the tax authorities.

WHY IS IT IMPORTANT?

Paying too much tax is like giving away money. Paying too little might get you in trouble. But on the other hand, getting it right will greatly increase your chances of running a profitable and relatively hassle-free business. 

HOW TO DECLARE TAX

The tax return is the easiest part. This can often be done online, which is a big step up from the days of paper returns. However, preparing these statements is the hardest part.

SALES TAX RETURN

An accountant usually manages them throughout the year. They will track what you have collected and then prepare a report to the tax authorities. Any taxes due are generally paid when the report is filed.

CORPORATE INCOME TAX

This is calculated on profit. The higher they are, the more taxes you have to pay. But there are legal ways to reduce your profits in the eyes of the taxpayer. This is when things get technical and high-risk, as government tax experts will audit your returns. That’s why most businesses hire an accountant to prepare their tax returns. 

EMPLOYEE INCOME TAX

They are calculated and collected from the employee’s payroll each pay cycle. You must file a report with the tax authorities showing how much you paid your employees and how much tax you withheld. They will let you know when to give them the money.

MODERN TAX RETURN

Tax time is now more challenging than it once was. Accounting software can do much of the tedious work, making filing times easier for your accountant or bookkeeper. For example, accounting software can estimate the amount of tax owed and quickly generate the reports needed to complete a tax return. These efficiencies make any tax season less stressful and less expensive.

Since accounting software records all the money coming in and out of your business, it can quickly perform calculations to estimate your taxes.

COMMERCIAL COMPANY LAW ACCOUNTING SUPPORT AND BOOKKEEPING

Any business needs to maintain accurate corporate tax accounting according to the rules in force in the United Arab Emirates. If this principle is applied, businesses can stabilize cash flow, prevent bankruptcy, and enable good long-term financial plans and forecasts. To ensure that the company keeps the books required by law, partners or shareholders must have access to the necessary data.

• ACCOUNTING BOOKS

Business accounting records must be kept at the company’s headquarters in the United Arab Emirates for at least five or more years after the end of the financial year. After that, businesses use electronic storage of records and documents subject to restrictions set by competent authorities. In addition, for shareholders to have a complete and accurate picture of the company’s financial position, annual and quarterly reports must be prepared following international accounting standards and practices.

• THE ACCOUNTANT’S OBLIGATION TO PREPARE FINANCIAL STATEMENTS

The manager’s job is to create an effective profit and loss budget for each year. In addition, within three months from the end of the financial year, the management must report on the company’s financial position and propose to the General Assembly the distribution of profits. If the manager fails to perform the required duties, he may be forced to pay damages or even be fired.

WHAT ARE THE LEGAL IMPLICATIONS OF FINANCIAL STATEMENTS IN THE UNITED ARAB EMIRATES?

Whether preparing financial statements and bookkeeping for value-added tax or corporate tax purposes, illegal conduct is subject to the following types of penalties:

Lack of proper accounting records on profit distribution

Tax experts say all businesses must establish and maintain accounting records following federal law. This mainly focuses on distributing legitimate profits among the various shareholders and partners. 

Failure to keep the necessary records of legal distribution, or if illegal distribution is found, will inevitably result in fines ranging from AED 50,000 to AED 500,000 and up to 3 years imprisonment for unlawful conduct. 

 

PROVIDING FALSE FINANCIAL STATEMENTS 

Businesses should maintain relevant head office accounting records in their purest form, including accurate loss, profit, and balance sheet data. If the liquidator, auditor, or company manager gives false information or makes a false statement, they can be imprisoned for up to 3 years. In addition, companies that do not keep accurate and transparent financial statements will be fined between 100,000 and 500,000 AED.