As we are aware that the Corporate Tax has been introduced from 1st June 2023 in the U.A.E.
ACCOUNTING REQUIREMENTS
As the tax is levied on the profits of the company/business, it is of paramount importance that the profits are calculated as prescribed by the Federal Tax Authority. It is also important that proper records are maintained by the company/business so that the records are in a position of being audited by the Authority if an audit is conducted.
Given below are the brief requirements of maintaining the accounts/records as directed by the Authority as specified in the Ministerial Decision No. 114 of 2023
Ministerial Decision No. 114 of 2023
Applicability of Accounting Method and applicable Accounting Standards -
1. Accounts needs to be prepared on Accrual Basis and Financial books should include: -
- Profit & Loss account
- Statement of other comprehensive income,
- Balance sheet,
- Statement of changes in equity and
- Cash flow statement
2. Cash basis of accounting is allowed only in exceptional circumstances if: -
- Revenue does not exceeds AED 3 million and
- Application is submitted to FTA.
3. In case of Group Taxation, Consolidated Financials should be prepared after elimination of inter-group transactions.
4. IFRS should be followed for the preparation of financial statements.
5. IFRS for SMEs needs to be followed if the revenue does not exceed AED 50 million.
AUDITING REQUIREMENTS
As mentioned above the Authority has the right to audit the accounts of the business/company for a period of five years. Hence the businesses are required to maintain proper accounting records and supporting documents for a period of five years from the end of the tax period to which they relate. Even if no audit is carried out by the Authority, certain businesses/companies are required to get their financial records audited by an Independent Auditor and must furnish the same to the Authority when requested. This is specified in the Ministerial Decision No. 82 as elaborated below:
Ministerial Decision No. 82 of 2023 specifies categories of Taxable Persons required to maintain Audited Financial Statements
Corporate Tax Law Provisions
- The Federal Tax Authority (“FTA”) is empowered to ask a Taxable Person to furnish their financial statement.
- The Minister is empowered to specify categories of Taxable Person who are required to maintain audited financial statements.
Recent Ministerial Decision – Following persons are required to maintain Audited Financial Statements
- A Taxable Person deriving Revenue exceeding AED 50 million during the relevant Tax Period; OR
- A Qualifying Free Zone Person
If you need any clarifications, please feel free to connect to us.