How a Business Should Maintain its Books of Accounts in UAE?
Yes, Maintaining the books of accounts and necessary supporting relevant records of businesses are highly essential requirements for efficient management and control of the business operations. This may facilitate the right receipt and payment of money and other transactions entered by the corporate. Hence accounts maintenance in UAE is compulsory. It is mandatory for the businesses to take care of the books of accounts for a minimum of 5 years in accordance with the Federal Law No 2 of 2015 on Commercial Companies and therefore the UAE VAT law and relevant free port laws. Additionally, the authority invites documents like annual accounts, ledger, purchase day book, invoices issued, invoices received, credit notes, debit notes, VAT Ledger etc. Businesses in UAE have to have qualified accountants to take care of their books of accountants in compliance with local laws & regulations and as per International Financial Reporting Standards (IFRS). Another good option for the businesses is to outsource accounting & bookkeeping services to accounting companies within the UAE. Hiring services of accounting & bookkeeping firms can enable the business management to focus more on the operations and completion of the business goals. Keeping proper books of accounts as per the UAE regulations would ensure accuracy in receipt and payment of money and other transactions done by the corporate. It might also help companies in addressing income requirements, preventing insolvency & bankruptcy, plan & forecast budgets that help in effective financial management & stability of the business.
Significant Reason for Maintaining Books of Accounts
1. Licence Renewal
In UAE the Company regulations both in mainland and free zones have certain limits in the preparation of accounts, the upkeep of accounts, appointment of auditors etc. The federal authority enforcing these regulations by required audited financial reports to be submitted at the time of licence renewals. Some companies that are operational for several years and haven't previously prepared or submitted any audited reports are even being asked to submit annual financial reports since the time they were established. This might be a really time-consuming and dear exercise, particularly against the pressure of a licence renewal deadline. It’s advisable to take care of the book of accounts properly and have them audited per annum.
2. Value Added Tax (VAT) Audits
Since 1 January 2018, when VAT was introduced within the UAE, any company exceeding the taxable supplies threshold of AED375,000 is required to register with the Federal Tax Authority. Companies also are entitled to say input VAT on qualifying expenses. It’s therefore imperative that any financial transactions are recorded accurately and in compliance with UAE’s VAT regulations because incorrect submissions can attract a spread of potential penalties.
Also read, How Does Vat Work In Uae?
Companies also are required to take care of books of accounts and supporting records for a minimum of 5 years under the Federal Tax Procedures Law. Failure to try to so will attract a penalty of AED10,000 initial instance with a further AED50,000 for repeat violations. When the Federal Tax Authority (FTA) agents perform VAT audits, they're going to compare VAT submissions against accounting records and ledgers, balance and financial statements. Accurate bookkeeping and preparation of monetary accounts are therefore essential.
3. Economic Substance Regulations
UAE is a member of the OECD/G20 Inclusive framework aboard Erosion and share (BEPS). So as to implement BEPS Action 5 addressing ‘harmful tax practices’, UAE Economic Substance Regulations have been effective from 1 January 2019. All mainland, free port or offshore companies within the UAE are required to notify the authorities if they're completing any of the relevant activities as defined by the regulations. If they're, there's an extra requirement to hold out an Economic substance test and submit a report no later than 12 months after the Judgment Day of the top of the company’s fiscal year. A variety of monetary and non-monetary information has to be declared and it's highly recommended to take care of books of accounts and supporting records so as to submit accurate reports, also to substantiate returns easily if required to try to do so by the authorities.
4. Country-by-Country Reporting
Under BEPS Action 13, any UAE tax resident entity that's a part of a Multinational Enterprise (MNE) with a consolidated group turnover of AED3.15 billion or above within the preceding fiscal year is required to submit a Country-by-Country Report (CbCR). A CbCR notification is required if the entity within the UAE may be a subsidiary, while additional reporting is going to be required if it's an ultimate parent entity. It’s important to recollect that the turnover threshold is for the whole group and not for the UAE-based entity. Incorrect or late filing can attract penalties starting from AED 50,000 to quite AED 1 million.
There are many various reasons why it's going to be necessary to liquidate which includes unprofitability, financial restructuring, the sale of underlying assets or the exit of a key member. To deregister your company in UAE, you want to first cancel all of your permits and licences, and a liquidator must be appointed. Registered auditors will need to prepare a liquidation report and that they would require previous audit reports, balance and profit and loss for the present period, also the other records as at liquidation dates. Systematic and standardised recording of the transaction helps the finalised liquidation reports generation easier for auditors
Why choose CDA?
CDA is a financial consultancy firm in Dubai, offering a wide range of services including Accounting, Auditing, Accounting Software services, Management and Tax Consultancy. We have been providing the best audit services in Dubai and the rest of the UAE. Our audit services in Dubai are beneficial for you to get clear information about all your business transactions and access an accurate report on risk assessment for the empowerment of your business, building a greater reputation.
You may also read, Advantages Of External Audit Services In Dubai, UAE
CDA offers a wide range of Business Services in Dubai and UAE, like VAT Consultancy Services, CFO Services, Due diligence services and many more related to your business. If you have any queries, feel free to contact us. Our experts are at the receiving end to attend your call and answer your queries. CDA offers a one-hour free consultation.