In the United Arab Emirates, the absence of taxes does not mean the absence of administrative obligations!
A common misconception among entrepreneurs in Dubai is that because there was no corporate tax and sometimes few requirements for license renewal, they believed there were no legal obligations to adhere to.
However, it is often during unusual transactions (such as changes in partners, liquidations, etc.) or audits (VAT, local authorities, etc.) that they discover their company has legal obligations, and failure to comply with these can lead to disputes and hefty fines, even imprisonment.
This guide presents some of the main legal obligations of companies in the United Arab Emirates. It covers free zone companies, mainland companies, as well as freelancers in Dubai and all other Emirates.
1- Maintaining accounting records in Dubai
Maintaining accounting records for a company may seem obvious, but it is not always the case, especially in a country where the absence of taxes prevailed for many years! The introduction of VAT in 2018 reminded of the importance of maintaining accurate accounting records. This involves the company recording all its expenses and revenues, producing a balance sheet and an income statement, and keeping them at the company’s headquarters for 5 years.
Note: financial statements must be in English and comply with IFRS accounting standards, which are based on US GAAP accounting standards. These financial statements include:
- Profit & Loss Statement;
- Balance Sheet;
- Ledger;
- Trial Balance.
2- Conducting an annual audit of accounts What is an audit of accounts?
An audit of accounts, conducted by an external auditor, is a process of thorough and independent examination of a company’s financial statements. Its main objective is to assess whether the financial statements present a true and fair view of the financial position, performance, and cash flows of the company. The auditor examines transactions, financial documents, accounting policies, and internal control systems to ensure compliance with accounting standards and regulations. By identifying any errors, frauds, or deficiencies in accounting, the auditor provides assurance on the reliability and integrity of the company’s financial information, thereby enhancing the confidence of investors, creditors, and other stakeholders in the company’s financial reports.
Drafting the audit report
After completing the financial statements at the end of the financial year, it is necessary to request an auditor (similar to an “auditor”) to prepare his report. This audit report aims to verify the reliability of the company’s accounting and provide an external opinion on its quality. The intervention of an independent auditor ensures transparency and compliance with accounting practices, while enhancing the credibility of financial statements with internal and external stakeholders of the company.
3- VAT registration
Since 2018, the UAE has introduced Value Added Tax (VAT), an indirect tax on consumption similar to intra-community VAT in Europe. Companies are responsible for collecting VAT on behalf of the authorities, essentially acting as intermediaries. This tax does not directly affect their results, but they must collect it on their sales of goods and/or services (collected VAT) and pay it on the goods and/or services they purchase (deductible VAT). Deductible VAT is paid on purchases from suppliers, while collected VAT is collected from customers on sales. VAT registration is mandatory depending on the company’s activity, with a minimum threshold for liability. Companies must then submit quarterly returns to the competent authority, the Federal Tax Administration (FTA).
We have covered the main legal obligations of companies in the UAE, but there are also other requirements to consider. We offer a free consultation to verify the compliance of your company, whether by phone, email, via video conference, or during a meeting in our office located in Jumeirah Lakes Towers (JLT) in Dubai. Contact us at support@ares-accounting.com to schedule your consultation.
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