Accounting and Financial Reporting in UAE: Statements and Requirements

Bookkeeping and annual accounts

Bookkeeping and submitting annual accounts are mandatory. Every year, an income statement and a balance sheet must be prepared according to the IFRS accounting standards.

According to the UAE legislation:

• Each Company should maintain its accounting and bookkeeping records at its head office for at least five consecutive years from the Company’s financial year-end date.
• Each Company should maintain accounting records with its transactions, provided that such records accurately and at any time demonstrate the Company’s financial position and through which shareholders and partners could verify that the Company’s accounts are maintained as per the provisions of law.

This article echoes Article 78 on “Record-keeping” of the Federal Decree-Law No. 8 of 2017 on VAT in the Emirates, which requires keeping all accounting elements for five years

In addition to the balance sheet and the profit and loss account, it should be noted that in connection with the bookkeeping, it is required to keep the following

– Records of wages and salaries (= register of wages paid)

– Records of fixed assets (= register of fixed assets)

– Inventory records and statements (including quantities and values)

Audit and Accounting in the UAE

All business entities within the UAE must keep financial and accounting records and obtain an annual audit report. The audit report contains all information about the income and expenses of the company. The auditor’s report can be submitted both in English and Arabic.

Company owners in the UAE may have many questions in this area. Many heard that a financial audit is only sometimes required for companies registered in the UAE.

• Does an audit need to be done annually?
• Are audits required in the UAE?
• Is it obligatory to submit financial statements to any authority

All UAE companies are required to keep bookkeeping records, conduct an annual audit, and keep these records for five consecutive years. According to the current Federal Law on UAE Commercial Companies, each company must appoint a licensed auditor registered with the Ministry of Economy to inspect its books. All financial documents must be made available to auditors during the annual audit.

The Commercial Companies Act is compulsory for all local businesses registered on the mainland. The requirement for these companies to conduct an audit is therefore obligatory in the legislation.

The 2016 JAFZA Implementation Rules require free zone businesses (FZEs) and free zone companies (FZCOs) to maintain financial records for six years. In terms of free zones, the UAE requires all companies to keep financial records for at least five years. DMCC, among many others, duplicates this requirement in its regulations.

Furthermore, some free zone authorities require the submission of certified financial statements by companies wishing to renew their trading licenses. Dubai Multi Commodity Center (DMCC), Dubai Airport Free Zone (DAFZA), Dubai World Central (DWC), Jebel Ali Free Zone (JAFZA), Dubai International Financial Center (DIFC), Dubai Silicon Oasis (DSO), Creative City – Fujairah are some of these free zones. Dubai Free Zones typically offer their clients a wide range of tax and audit consulting firms.

GENERAL ASSEMBLY

Every company in the UAE must hold an annual general meeting within four months of closing the company’s accounts (usually by April 30).

The company’s manager must then present the company’s balance sheet and profit and loss account, the manager’s report on the activity and the auditor’s report.

Here are the applicable sections (Federal Law No. 2 of 2015) on this subject:

– Article (87): Liability for Preparation of Accounts Company’s manager shall prepare an annual budget, profit and loss account and annual report on the company’s activities and financial standing and shall provide suggestions regarding the distribution of profits to the General Assembly within three months as from the expiry date of the fiscal year

– Article (92) – Formation & Convention of General Assembly: A company with limited liability shall have a general meeting of all the partners. The meeting shall convene at the invitation directed by the managers or board of directors at least once every year within the four months following the expiry of the fiscal year at the venue and date fixed in the MOA.

Filling out a VAT return

VAT-registered businesses and taxpayers must file a VAT return with the Federal Tax Administration (FTA) at the end of each tax period.

The VAT return consists of a summary of the value of purchases and supplies made by the taxpaying business during the defined tax period. It also includes an overview of the amount of VAT the taxpayer must pay at the end of the tax period.

VAT returns are submitted regularly through the Federal Tax Authority’s electronic portal – within 28 days after the end of the tax period for every business. The standard tax period is as follows

– A month for companies with an annual turnover of 150 million AED or more

– A quarter for businesses with a turnover of up to 150 million AED

Please note that the UAE Federal Tax Authority may periodically conduct a tax audit of a legal entity doing business in the country. This follows the provisions of the tax law.

Audits of this kind are conducted after prior notification of the legal entity – the audit object – at the place of business or accounting. For proper verification of accounting records, the tax auditor has the right to close the place to be audited (e.g. warehouse or store) for up to 72 hours.

TAX ON THE PROFITS OF COMPANIES WITH MAINLAND ACTIVITY

From 2023, a 9% tax on profits above AED 375,000 will be introduced in the UAE.

It will concern Mainland companies and Free-zones companies having an activity in Mainland (the Authorities do not detail this point).

It will be required to submit an annual tax return to the Authorities. This reinforces the importance of the careful and detailed bookkeeping of the company.

ESR NOTIFICATION AND ESR REPORT

The Economic Substance Regulation (ESR) requires the following:

• A report to the Registry by 31/12 of each year
• Notification to the Registry indicating whether the company is concerned by this law

UBO REGISTRY

Since 2021, it has been required to keep a Register of Ultimate Beneficiaries (UBO) of the company. There are two registers:

• Register of Partner / Shareholder
• Register of Nominee Director / Manager

For Mainland companies, the Register must be kept internally. For Free-zone companies, this Register is usually held in the Registry.

Given the above information, we can conclude that the UAE is a very business-friendly jurisdiction. There is no unreasonably high regulation of business activities in the country. Business reporting is minimal and meets the government’s goals of meeting high international standards of transparency and legality in the business environment.

We provide consulting services for your business and will help you fulfil any of the above responsibilities. Contact us for a consultation, and we will be happy to help with your issue.