To renovate its economy in line with international standards, the UAE plans to implement the UAE corporate tax law in 2023. Considering that the UAE has long been regarded as a business centre with no corporation taxes, the introduction of these taxes constitutes a paradigm transition. Banks and oil firms have up to this point paid corporate taxes to the government. All firms will be liable for the new tax, however, there are several restrictions and exclusions. The early introduction of the regime is purposed to attain the perceptions of the businesses in this regard. This article will answer an important question regarding Audited Financial Statements.
Are audited financial statements mandatory?
When it comes to the requirements of audited financial statements, it is mandatory for different commercial companies like public joint stock firms, commodities owing private joint stock, and limited liability companies (LLCs) to hand out audited financial statements as per Commercial Companies Law UAE. The corporate tax regime says that these company laws will determine the requirement of audited financial statements in the UAE as they have been doing in the past.
Besides, companies operating in free zones like JAZFA and DMMC are also mandated to submit audited financial statements to the respective free zone authority within the given time frame just after the end of the financial year. These annual statements should be made in accordance with the GAAP (generally accepted accounting principles) and a licensed UAE auditor should be auditing them.
Payment of corporate tax in UAE is executed on the accounting net revenue logged in the financial accounts of the enterprise under obligation, according to the preliminary information provided by the Finance Ministry. Corporations are instructed to submit audited financial statements since they will give the authorities more information about how well the firm is complying with corporate tax in UAE.
What’s the purpose of the audit?
The purpose of the audit is to assure that there exists no misstatement in the material of the financial statements no matter because of error or fraud. The audit report will include a comment on the accuracy and confidentiality of these statements, as well as any material findings or recommendations. Audited financial statements are an important tool for investors and other stakeholders, as they provide transparency and accountability.
Issuing audited financial statements is a requirement of doing business in the UAE, and failure to do so can result in significant penalties. For this reason, it is important to work with a qualified and experienced UAE auditor to ensure that your financial statements comply with the law.
Why should a corporation uphold audited statements?
There are several reasons why a company in the UAE should maintain audited accounts;
- Up-to-date records are essential to make informed management decisions. Without accurate and up-to-date information, it is difficult to make sound decisions about the direction of the company.
- Additionally, audited accounts provide independent verification of the information contained in the company's financial statements. This can be important in terms of maintaining the confidence of shareholders, creditors, and other interested parties.
- It can help attract investors. Having audited accounts can show potential investors that the company is serious about its financial reporting and that it is committed to transparency. This can give the company a competitive edge when seeking investment.
- Audited accounts can help reduce the risks of fraud. This is because an independent auditor will review the company's financial statements and transactions to ensure that they are accurate and compliant with relevant laws and regulations. This can help to deter and detect potentially fraudulent activity.
- Auditors that are qualified and experienced can save your business from fraudulent financial activities.
Read More: Corporate tax compliance requirements in UAE
What are the legal requirements for commercial firms as per Federal Law no 32, 2021?
Law states that:
- Every corporation must have one or more auditors to annually review the accounts
- Statements regarding loss and profit and balance sheets must be included in the annual financial records that the firm formulates.
- To provide an obvious and precise idea of profits and losses, the company must use the International Accounting Standards and Practices when creating its occasional and annual reports.
Moreover, Companies operating in free zones must adhere to their specific free zones' requirements. For instance, some governments, like the IFZA and RAKEZ free zones, do not now require businesses to provide yearly audited financial statements. In contrast, free zones such as Dubai South and the DMCC require all businesses to submit annual audited financial statements.
Being a business owner you should think in advance to meet compliance requirements as per law regarding corporate tax in UAE. Of course, you cannot do it all by yourself while managing other activities as well. So, it is better to seek corporate tax advisory services to make smart decisions. Corporate tax advisors can guide you in a much better way for audited financial statements. They also help businesses to meet up with legal requirements.
Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.