Bookkeeping after for Your UAE Business

Top Reasons Why Bookkeeping after CT Implementation Is Critical for Your UAE Business

From whispers to official gazettes, the talk of corporate tax in the UAE has been a journey. Now it’s more than just chatter – it’s a reality. On June 01, 2023, the UAE Federal Corporate Tax Law came into effect, marking a momentous shift in the nation’s financial landscape. And, now is the time when we assert the crucial importance of bookkeeping after corporate tax implementation!

This landmark law signifies the introduction of a corporate tax regime in the UAE, a region previously renowned for its zero corporate tax environment. 

Now, there is much more to this; however, it is fair to summarize that a standard tax rate of 9% is now applied to taxable income exceeding a threshold of AED 375,000, while a 0% rate is maintained for taxable income that doesn’t exceed this benchmark. There are several other factors at play, which we have discussed here, here and here.

It’s a change, but it’s also an opportunity for businesses to rethink, reinvent, and re-establish their financial strategies.

More importantly, it is important to understand why your business’ accounting and bookkeeping practices are even more important now after the implementation of Corporate Tax UAE 2023.

Steering Through Interim Tax Accounting – Considerations and Implications

Navigating the new waters of interim tax accounting under the new Corporate Tax Law can be a complex task. Here are some key considerations and implications that you should be aware of:

Transitional Rules

  • Your company’s opening balance sheet for corporate income tax purposes will largely be the prior period closing accounting balance sheet for many financial statement line items. This process should generally simplify the calculation of deferred tax.
  • However, these transitional rules are subject to any conditions or adjustments prescribed by future Cabinet Decisions.

The Changing Dynamics of Bookkeeping

With the enactment of the Corporate Tax Law in the UAE on January 16, 2023, the approach towards bookkeeping and accounting for deferred income taxes has seen a seismic shift.

Businesses must now reassess their accounting practices, ensuring they comply with the new tax regulations. For reporting periods ending on or after January 16, 2023, companies need to account for deferred income taxes.

This implies that you need to evaluate and record the tax implications of transactions and other events in the period they occur. These transactions and events may affect either the current tax payable or deferred tax liabilities or assets, or both. It’s essential to keep in mind that even though the actual payment or recovery of these amounts may be deferred, the obligation or right to pay or recover these amounts in the future is not.

Compliance with Law

Avoid heavy penalties, avoid double taxation, get your exemptions in order and keep financial statements consistent. Proper bookkeeping ensures compliance with tax laws. Corporations must pay taxes on their profits, which can be calculated accurately only if there’s a correct record of all transactions.

Tax Planning

Through bookkeeping, companies can strategically plan for their taxes, helping them to take advantage of any tax breaks or incentives available.

Preparation of Financial Statements Bookkeeping helps in the preparation of financial statements like the balance sheet, income statement, and cash flow statement, which are crucial for tax filing. These statements provide details about the financial health of the company and are required by tax authorities.

Audit Trail

Good bookkeeping practices provide a clear audit trail. If a company is audited by the tax authority, having organized and thorough records can make the process smoother and less stressful.

Accurate Tax Payment

Proper bookkeeping ensures the company pays the correct amount of tax. It prevents underpayment that could lead to penalties and interest, as well as overpayment, which is not cost-efficient.

Monitoring Profitability and Growth

Corporate tax is often calculated as a percentage of profits. Therefore, good bookkeeping helps monitor the profitability and growth of the company. It enables the company to be aware of its tax obligations in advance and to manage its cash flow accordingly.

Evidence of Expenses and Deductions

Many expenses can be written off or deducted to reduce the tax liability. Proper bookkeeping allows for a record of these expenses, which is necessary to claim them.

Embracing these new dynamics and adapting to these changes can be quite a challenge, but remember, you’re not alone. Navigating this new corporate tax landscape may require professional guidance, and we’re here at Horizon Biz Consultancy to help.

Bookkeeping and the Impact of Deferred Tax After Corporate Tax Implementation in UAE

In light of the recent changes, it’s crucial to grasp the concepts of Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL). Deferred taxes are a result of timing differences in the recognition of income and expenses for tax and accounting purposes.

Deferred Tax Assets (DTA)

These are amounts that have been overpaid or taxes that have been paid in advance. DTAs may arise due to advance tax payment or due to provisions for expenses, not deductible in the tax computation until a future date. Simply put, they can be used to offset future tax liabilities. Although, SMBs may not need to consider this aspect as of now; however, large enterprises, or companies that are a Foreign Branch office may need to consider this when planning for corporate taxes. 

Deferred Tax Liabilities (DTL)

On the other hand, deferred tax liabilities arise when there’s a difference between the accounting income and the taxable income. For instance, depreciation might be charged at a different rate for the purpose of financial statements and the tax law. This difference creates a deferred tax liability, indicating that you’ll pay more tax in the future. It is best to comply with suggested accounting standards under UAE CT Law right from the beginning itself so 

Take the Advantage of Expert Bookkeeping after CT Implementation

While understanding and adjusting to the new tax law can be overwhelming, professional help can ease this transition. At Horizon Biz Consultancy, we’re equipped to assist businesses in the UAE to navigate through the corporate tax implementation effectively and compliantly. Together, we can turn this change into an opportunity for growth and success!

Get in touch with us today for a free thirty minutes’ consultation on this number +97150 841 3395

Quick Contact
Call us Whatsapp
Quick Contact