Why Your UAE Business Needs to Get Audited for Corporate Tax
Global Finance has evolved and so has UAE’s policies. As expert corporate tax consultants, based in Dubai, this is an exciting time for us to be able to deliver the right guidance at the right time to businesses not just in the UAE but across our diverse clientele spread globally. In light of the Ministerial Decision No. 82 of 2023, released early May this year, we break down which businesses need to have mandatory audits starting from Jun 01, 2023 tax period.
Some context first…
This decision, issued by the Minister of State for Financial Affairs, details the categories of taxable entities required to prepare and maintain audited financial statements under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
This law is the result of comprehensive deliberations on numerous preceding laws and amendments, from the Constitution and Federal Law No. 1 of 1972 on the Competencies of Ministries and Powers of the Ministers to Federal Decree-Law No. 13 of 2016 on the Establishment of the Federal Tax Authority, among others.
The No. #1 Reason Your UAE Business Must Get Audited
Navigating the business scene in the UAE isn’t a cakewalk, is it? Thanks to corporate tax reforms, with all the hustle and bustle, ever-changing market dynamics, and strict financial rules, you’ve got to be on your A-game.
That’s precisely where auditing swoops in to save the day. It’s like a magnifying glass for your finances, helping you dive deep into your records and transactions to see if everything’s on track.
Now, why is that so important?
Well, say your turnover is less than AED 50 million. An audit is your best friend to prove it. It paints an accurate financial picture of your business, keeps misunderstandings at bay, and also keeps you out of hot water with regulatory bodies.
Think of it as your business’s health check-up but for finances. So, in the bustling economic landscape of the UAE, auditing isn’t just a nice-to-have, it’s a must-have for clarity, credibility, and growth.
Basics You Should Know About Getting Your Business Accounts Audited
An audited financial statement is a comprehensive report on a company’s financial activities that has been examined and verified by an independent certified public accountant (CPA) or a firm specializing in auditing like Horizon Biz Consultancy, Dubai.
This type of financial statement provides a thorough account of a business’s financial status, including its income, cash flow, equity, and balance sheet information.
The Auditing process involves several steps.
The auditors first gain an understanding of the business, its operations, and its internal controls.
They then verify the transactions and balances reported in the financial statements by examining supporting documents such as invoices, bank statements, contracts, and other relevant records.
They also carry out tests to ensure that the company is following appropriate accounting standards and practices, and that there is no evidence of fraud or misrepresentation.
We then prepare a report that includes our opinion on the accuracy, completeness, and representation of the financial statements.
This report provides assurance to shareholders, investors, creditors, and other stakeholders that the company’s financial statements are reliable and in accordance with applicable accounting standards.
In addition, there are several benefits of carrying out regular audits. Here’s why auditing can be a game-changer for your UAE business, especially with the implementation of corporate tax:
Fix Your Financial Year
An audit helps set a clear timeline for your financial activities, removing ambiguity in your fiscal planning.
Fix Your Numbers
An audit validates your financial records, ensuring they are accurate, reliable, and fully reflective of your business’s health.
Proof to Verify All Thresholds
If your turnover is less than AED 50 million, an audit is your ticket to confirm this, keeping you in compliance with UAE’s fiscal regulations.
Navigating Corporate Tax
In the era of corporate tax, an audit provides a clear view of your taxable income, making sure you’re paying the right amount of tax.
Boost Investor Confidence
An audit demonstrates fiscal responsibility and transparency, which can boost investor confidence in your business.
Strengthen Stakeholder Relationships
Regular audits provide stakeholders with reassurances about the financial health and integrity of your business, promoting trust and satisfaction.
Identify Potential Issues
An audit can uncover financial inconsistencies or areas of risk, helping you to bolster your financial strategies.
Improve Business Efficiency
Auditing often brings light to areas where operational efficiency can be improved, which in turn can lead to cost savings.
Regular audits help ensure your business stays compliant with local laws and regulations, helping you to avoid costly penalties and damage to your reputation.
In essence, an audit isn’t just a statutory requirement or a tool for tax navigation, it’s a complete health check for your business. It provides a robust foundation for future growth, credibility, and above all, peace of mind in an ever-evolving business landscape.
They not only provide an accurate reflection of a company’s financial health but also serve as a vital tool for decision-making for investors, creditors, tax authorities and the company’s management.
Which financial statements are generally included in the audit?
An audit typically encompasses the following four primary financial statements:
Balance Sheet (Statement of Financial Position)
This statement provides a snapshot of the company’s financial condition at a specific point in time. It details the company’s assets, liabilities, and equity, following the fundamental equation: Assets = Liabilities + Equity.
Income Statement (Profit and Loss Statement)
The income statement shows the company’s revenues, costs, expenses, and net income over a specified period. It provides insights into the company’s operations and its profitability.
Cash Flow Statement
This statement records the company’s cash inflows and outflows over a particular period. It segregates the cash flow into three categories: operations (from the company’s core business activities), investing (from the purchase and sale of assets), and financing (from the issuance and repayment of equity and debt).
Statement of Changes in Equity
This statement outlines the changes in equity owners’ investment in the business over a period. It includes new equity investment, dividends, and the company’s net income for the period, among other changes.
These financial statements are interconnected, each contributing to a complete picture of the company’s financial health.
Together, they provide a comprehensive overview of a company’s financial activities, including its profitability, liquidity, solvency, and return on investments.
They allow auditors to assess whether the company’s financial statements are a fair and accurate representation of its financial condition and are prepared in accordance with applicable accounting standards and principles.
Who Needs to Get Mandatory Audits for Corporate Tax
In order to understand the implications of the Ministerial Decision No. 82 on who needs to get audited for Corporate Tax, it is essential to unpack the critical components.
The cornerstone of the decree, the Article (2), clearly outlines the entities required to prepare audited financial statements. According to it, these are simply taxable entities with revenue exceeding AED 50,000,000 annually and Qualifying Free Zone Persons.
Now comes the real question, even if you fall below the threshold, do you need to get audited for Corporate Tax purposes?
The answer is a simple resounding Yes. As we discussed earlier in this article, you need to be able to prove that’s where you stand, below AED 50 million.
How Can Horizon Biz Consultancy Assist You on This?
In the current UAE economic landscape, the role of a corporate tax consultant, such as expert tax consultants, Dubai, at Horizon Biz Consultancy, has become increasingly indispensable.
Our team, under the guidance of CA Vibha Malik Modi stands ready to guide you through these changes, ensuring your business’s continued compliance and stability in the face of new tax obligations.
Our commitment is to keep you informed, prepared, and ahead, navigating you towards a horizon of continued financial success. Schedule a quick free consultation call for 30 minutes to find out yourself today on this number +97150 841 3395.