Last week, the UAE Ministry of Finance issued its second update to the Frequently Asked Questions (FAQ) regarding corporate income tax since July, bringing the total number of FAQs to 351, up from 209 in July.
These updates demonstrate the government’s commitment to providing timely guidance on critical tax matters. It is worth noting that the Federal Tax Authority (FTA) has once again emphasized the importance for business owners to stay updated on the requirements related to financial reporting.
Financial Reporting Taxpayers must determine their income based on sufficient, independently prepared financial statements in accordance with the prescribed accounting standards. Therefore, under the Companies Tax Law, taxpayers are required to prepare and retain financial statements. All documents and records supporting the information in tax returns or other declaration forms, including business-related correspondence, invoices, tax invoices, licenses, and agreements/contracts, should be retained.
- Documents containing details of any tax exemptions chosen, decisions made, or calculations related to taxpayers’ tax affairs.
- Documents related to related party transactions (if applicable).
- Records must be kept in physical and/or electronic form for seven years after the end of the relevant tax period.
Requirements for Audited Financial Statements
Requirements for Audited Financial Statements The Federal Tax Authority (FTA) mandates that companies meeting the following criteria must have their financial statements audited for each financial year:
- Taxpayers with income exceeding AED 50 million in a tax period.
- Qualified Free Zone Persons (QFZP).
**Per Federal Law No. 12/2014 and Ministerial Resolution No. 403/2015, financial statements must be audited by registered auditors.
It’s important to note that even companies that do not meet the audit criteria are obligated to maintain updated financial statements. While the Companies Tax Law may not require companies to keep audited financial statements, if other existing laws (such as relevant free zone regulations) demand it, companies are still required to retain audited financial statements.
Consolidated Financial Statements
Consolidated Financial Statements Before corporate income tax is imposed, most business owners tend to maintain a single set of books, even if they own multiple companies. One of the frequently asked questions in the FTA’s FAQ is, “Can consolidated financial statements covering multiple companies be maintained for tax purposes, or does each company need separate financial statements?”
The FTA reiterates that, except for a “tax group,” each UAE entity must prepare and retain separate financial statements. If a tax group’s income exceeds AED 50 million in a tax period, its financial statements must be audited as required.
Currency Exchange For tax purposes
Currency Exchange For tax purposes in the UAE, all amounts—income, expenses, deductions, and offsets—must be measured in Dirhams. Foreign currency income and expenses need to be converted into Dirhams.
When converting foreign currency transactions into UAE Dirhams, the exchange should be based on the applicable exchange rates set by the UAE Central Bank.