22nd May 2024
Welcome back to the NumberNinjas.ae blog! Today, we're going to help small business owners in the UAE to by explaining your accounting and financial filing obligations. Interpreting the various laws and implementing the necessary measures to ensure accuracy and compliance can be challenging and time consuming, especially for non-accountants, so we're highlighting the keys points, in an easy-to-understand manner to help you. Awareness and understanding will encourage you to take the necessary actions to avoid financial penalties and ensure your company is compliant and in good standing with a good credit rating. In this blog post we'll cover:
UAE Small Business Accounting: Legal Requirements Explained
1. Maintaining Accurate and Up-To-Date Records
2. Payroll and Employee Records
3. Value Added Tax (VAT) Compliance
4. Corporate Tax Compliance
5. Audit Requirements
6. Excise Tax Compliance
7. Anticipated Tax Relief for R&D
8. Conclusion
1. Maintaining Accurate and Up-To-Date Financial Records
Every mainland company in the UAE (i.e. companies which are not licensed by and located in a free zone), are required to adhere to the Federal Decree Law No. (32) of 2021 on Commercial Companies which outlines the minimum obligations in relation to accounting records.
Every UAE mainland company must:
Keep up-to-date financial records.
Keep financial reports for five years from the end of the financial year.
Appoint a UAE-licensed auditor to carry out an audit of the accounts, annually.
Prepare financial accounts including a balance sheet and profit and loss statement.
Prepare accounts in line with International Accounting Standards.
Provide a free copy of the latest audited accounts to any shareholder, upon written request, within 10 days.
Companies’ financial accounts are required to record payments, receipts, purchases, sales, profits and expenses; and maintain:
Balance sheets
Profit and Loss (P&L) statements
Fixed assets records
Inventory statements and records of stock takes
Records of salary payments
Tax returns
Do UAE Free Zone Companies Have to Keep Financial Accounts?
Historically, only a few of the UAE’s free zones required companies licensed in their jurisdiction to file their annual accounts, although companies were always encouraged to maintain records for good financial practice. Now, with the implementation of corporation tax in the UAE, free zone authorities are driven to insist upon their licensed companies maintaining and filing their financial accounts at the time of their license renewal.
Although we've explained the UAE accounting requirements, maintaining accurate financial records is the foundation of a successful business, but it can be a daunting task, especially for those without an accounting background. For additional help, explore our previous blog post: A-Z of Accounting and Bookkeeping for Small Businesses in the UAE. At NumberNinjas.ae, we understand the importance of meticulous bookkeeping and offer comprehensive Accounting and Bookkeeping Services to take this burden off your shoulders. Our team of experienced accountants will ensure that your financial records are up-to-date, organized, and compliant with the latest regulations. From invoicing and expense tracking to bank reconciliations and financial reporting, we've got you covered. Outsource your accounting needs to us and focus on what you do best – growing your business. Discover our Accounting and Bookkeeping Services and let us handle the numbers while you handle your passion.
2. Payrol and Employee Benefits
WPS Compliance: UAE mainland companies registered with the Ministry of Human Resources and Emiratisation (MOHRE) are required to pay employees through via the federal payroll system called the Wage Protection System (WPS).
For companies to be WPS-compliant you need to:
Register with your bank for the processing of WPS
Create a Salary Information File (SIF) every month for each employee, detailing various information, including your employees’ UID numbers from MOHRE, the number of days worked, salary amount being paid, employee bank account details etc. (SIF templates vary by bank and the amount of information collected varies accordingly.)
Upload the SIF to the bank on time to avoid penalties in the form of blocks preventing you from applying for new work permits.
The SIF file is processed via MOHRE and will be automatically rejected if it doesn’t meet the requirements. However, upon approval, the funds will be debited from the company account and electronically transferred to each employees’ personal account.
WPS Exemptions: Companies exempt from WPS obligations include: fishing boats and public taxis owned by nationals, banks, houses of worship, seamen and workers of foreign companies or their subsidiaries working in the UAE who receive their salaries outside of the country.
Employee Benefits: Maintaining accurate records of employee-related entitlements and expenses is essential, including leave entitlement, sick leave and pay, and End Of Service Benefit (EOSB) also referred to locally as gratuity. Upon completion of one year's service, employees start to accrue gratuity at a rate of 21 days per year for the first five years of service and 30 days per year thereafter.
Pension Contributions for Emirati Employees: When employing Emirati nationals, companies need to adhere to additional requirements relating to their pension, as follows:
Your company is required to register with the Abu Dhabi Retirement Pensions and Benefits Fund (ADRPBF)
5% of an Emirati’s monthly salary must be deducted when processing the payroll and diverted to the ADRPBF.
You are required to contribute an additional amount to the ADRPBF on the employee’s behalf, equivalent to 15% of their monthly salary.
Remove the burden of setting up your SIF file ready for processing your first payrol and streamline your payroll and employee benefits management with NumberNinjas.ae! Our expert payrol setup and outsourced payrol services ensure accuracy and compliance, freeing you to focus on growing your business. Plus, as you business grows and you start to employ Emirati nationals, we will handle your Abu Dhabi Retirement Pensions and Benefits Fund (ADRPBF) registration, ensuring your employees' futures are secure and your company remains compliant. Scan the QR code to contact Raja Wajahat, Co-Founder and Finance Master of NumberNinjas.ae to simplify your payroll processes and enhance your employee benefits management.
3. Value Added Tax (VAT) Compliance
It is mandatory for companies to register for VAT with the Federal Tax Authority (FTA) when their annual turnover exceeds AED375,000. Companies may opt to voluntarily apply for VAT when their annual turnover reaches AED187,500.
As per Federal Decree-Law No. (8) of 2017 on Value Added Tax, key VAT compliance requirements are as follows:
Tax Registration Number (TRN): Ensure your TRN is mentioned on any tax-related documents, e.g. tax invoices and VAT returns.
VAT Invoicing: Tax invoices must be issued for all taxable supplies, within 14 days of the supply. A compliant tax invoice must include the following information: “Tax Invoice”, name, address and TRN of both the supplier and recipient (TRN is only necessary for the recipient if they are VAT-registered), unique, sequential tax invoice number, date of issuance, date of supply if different from date of issuance, description of goods and services, unit price, quantity/volume of supply, payable VAT rate, payable amount (in AED), any discount, total amount payable in AED, amount of tax payable in AED, and the exchange rate (if applicable).
Record Keeping: Companies are required to keep records of all taxable supplies, tax invoices, tax credit notes, taxable supplies that have been disposed of or not used for business matters, taxable supplies for which input tax was not deducted, exported taxable supplies and adjustments and corrections to tax invoices. Additionally, it is required to maintain VAT records showing output tax, output tax on taxable supplies accounted for via the reverse charge mechanism, output tax after corrections or adjustments, input tax and input tax after corrections or adjustments. These records are required to be retained for a minimum of five years following the end of the tax period. In relation to real estate, records must be retained for a minimum of 15 years.
Advertised Prices: All prices for taxable supplies must include VAT at the prevailing rate, currently 5%, unless they are for export or in the instance the customer is VAT registered themselves.
UAE VAT Return Filing: The FTA allocates tax periods to new registrants. These are usually quarterly. Companies are required to file their VAT returns and make any VAT payments within 28 days of the end of each tax period, or on the next working day if the 28th day falls on a weekend or public holiday. VAT returns must include the following details for the relevant tax period: value standard tax rate supplies and the imposed output tax, per Emirate, tax refunds provided to tourists under the Tax Refunds for Tourists Scheme, value of zero-rated supplies, value of VAT-exempt supplies, value of supplies received which are subject to the reverse charge mechanism, imported goods, value of purchases and expenses incurred if you are seeking to claim the input tax, and the refundable tax value, and any supplies subject to the reverse charge mechanism in order to recover input tax.
Notification of any company changes: Inform the FTA of any amendments of information within 20 business days of the occurrence.
Navigating VAT registration and filing can be complex and time-consuming, but it doesn't have to be. At NumberNinjas.ae, we offer a comprehensive VAT registration and filing service, as well as a variety of support services designed to give you peace of mind. Our experienced professionals ensure that your VAT obligations are handled accurately and timely, so you can focus on growing your business. Don't let VAT compliance stress you out—outsource it to us and rest easy knowing you're in expert hands. Learn more about our VAT Registration and Filing Services.
4. UAE Corporate Tax Compliance
It is mandatory for all companies in the UAE to register for corporation tax. Upon successful registration, the FTA will issue registrants with a Certificate of Registration for Corporate Tax in the United Arab Emirates, which contains the registrant’s unique Tax Registration Number (TRN).
UAE Corporate Tax Registration Deadlines: In February this year, the FTA issued new deadlines for corporate tax registration, which are based upon the month in which your trade license was issued. Check the table below to find out when your company needs to be registered by:
Month Trade License Issued | Corporate Tax Registration Deadline |
January, February | 31st May 2024 |
Juridical persons without a license | 31st May 2024 |
March, April | 30th June 2024 |
May | 31st July 2024 |
June | 31st August 2024 |
July | 30th September 2024 |
August, September | 31st October 2024 |
October, November | 30th November 2024 |
December | 31st December 2024 |
Companies incorporated after 1st March 2024, are required to register within three months of the date of issuance of their trade license, unless they are recognized under the legislation of another country and controlled in the UAE, in which case, the company is required to register within three months following the end of its financial year.
Failure to register on time will incur a fine of AED10,000.
Do Free Zone Companies Need To Register for Corporate Tax in the UAE? Free Zone Companies (FZCOs and FZEs) are required to register for corporate tax and to file an annual tax return; however, provided you are complying with free zone regulations, i.e. conducting your business within the free zone or overseas, and not conducting business with UAE mainland companies, and can demonstrate adequate substance in the free zone relative to the nature and level of your activities and qualifying income, you will be exempt from corporation tax under the Free Zone Corporate Tax Regime.
Any free zone companies which are conducting business with UAE mainland companies or are generating revenues from excluded activities, e.g. income from certain regulated financial services, intangible assets and immovable property, are excluded from the Free Zone Corporate Tax Regime. However, a de minimis allowance has been implemented for non-qualifying income, which must not exceed 5% of your total revenue or AED5 million, whichever is lower. In the instance the free zone company exceeds the de minimis allowance, you will not be able to benefit from the Free Zone Corporate Tax Regime for a minimum period of five years. During that time, you will be subject to corporate tax at the prevailing rate (currently 9%) on your taxable income over AED375,000.
As per as per Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, the key corporate tax compliance requirements are:
Corporate Tax Rate: For most companies in the UAE, the corporate tax rate is 0% on taxable income up to AED375,000, and 9% on taxable income of AED375,000 and above. For foreign banks in the UAE, the corporate tax rate is 20%, and for oil and gas companies the rate is as per their specific concession agreements.
In relation to Global Minimum Tax (GMT), Pillar Two of the OECD Global Anti-Base Erosion Rules (GloBE Rules) targets Multinationals Enterprises (MNEs) with annual revenues of AED3 billion to pay a minimum of 15% tax in respect of excess profits in each jurisdiction in which they operate. In March 2024, the UAE Ministry of Finance launched a digital public consultation on the implementation of GMT with relevant stakeholders. Therefore, large MNEs can expect the rate of tax applicable to their operations in the UAE to increase at some point within the next couple of years.
Taxable Income Exemptions: The following income is exempt from UAE Corporate Tax: dividends from UAE licensed companies, dividends from ownership in a foreign juridical person, certain income from a domestic shareholding, e.g. capital gains, foreign exchange gains / losses and impairment gains or losses, income from a foreign branch subject to claiming Foreign Permanent Establishment exemption, and income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met.
Corporate Tax Exemptions: The following types of companies are exempt from UAE Corporate Tax: UAE federal and Emirate-level government departments and authorities, companies wholly owned by a government entity carrying out mandated activities, qualifying companies mining UAE natural resources and qualifying public benefit entities. The following types of companies can apply to the FTA for exemption: qualifying investment funds, qualified public or private pension or social security funds, and UAE companies wholly-owned and controlled by certain exempted entities and undertaking certain activities.
UAE Corporate Tax Period: 12 months mirroring the company’s financial year.
UAE Corporate Tax Returns: UAE companies will be required to file a corporate tax return and pay the tax due within the 9 months following the end of the tax period.
Navigating the complexities of corporate tax can be overwhelming, but with NumberNinjas.ae, you don't have to go it alone. We offer specialized Corporation Tax Registration and Filing Services to ensure your business stays compliant with UAE tax regulations. Our team of seasoned professionals will handle everything from registering your business for corporate tax to accurately preparing and filing your tax returns. By outsourcing your corporate tax needs to us, you can rest assured that your tax obligations are met accurately and on time, allowing you to focus on driving your business forward. Explore our Corporation Tax Registration and Filing Services and let us take the stress out of UAE tax compliance.
5. Audit Requirements
All mainland companies are required to have their financial accounts audited. Some free zones require their licensed companies to submit audited accounts whilst others accept un-audited accounts. Free zones operate under their own individual regulations; therefore, free zone companies must check the financial reporting requirements related to their specific free zone to ensure compliance.
6. Excise Tax Compliance
This is only applicable to companies producing, importing or stockpiling excise goods in the UAE. Such goods include tabacco and tobacco-related products and carbonated, sweetened and energy drinks. As these regulations apply to a limited number of companies, we aren’t including the specific obligations for companies within this blog. However, if you believe that your companies needs to register for excise tax, you are welcome to contact us for clarification. Scan the QR code at the bottom of this blog post to contact Raja Wajahat, the co-founder and Finance Master of NumberNinjas.ae who will be happy to assist you.
7. Anticipated Tax Relief for Research & Development
As part of the UAE’s long term goals to develop the country into a Research and Development (R&D) hub for future economic sectors, it is likely there may be tax relief for qualifying R&D companies. In April 2024, the UAE Ministry of Finance launched a digital public consultation on potential implementation of a R&D tax incentive.
8. Conclusion
Staying compliant with the UAE's accounting and legal requirements is essential for the smooth operation and growth of your small business. At NumberNinjas.ae, we're here to help you navigate these obligations with ease. Our expert team can assist you with bookkeeping, VAT compliance, corporate tax, and more, ensuring your business remains on the right track. If you have any questions or need assistance, don't hesitate to contact us.
Stay tuned for more insightful content to help your business thrive in Abu Dhabi, Al Ain and Dubai!
Subscribe to our blog for more informative and useful content in a style which is easy for everyone to understand, even non-finance managers!
If you have any questions or comments related to this blog post, feel free to post in the comments and start a conversation. Spam comments will be deleted.
The NumberNinjas.ae Team
Comments