Mastering UAE Corporate Tax with Accounting and Bookkeeping
As per FTA on the Taxation of Corporations and Businesses, accounting and bookkeeping are very important for UAE businesses. Compliance with UAE Corporate Tax laws can be ensured by maintaining proper financial documentation. Hence reduces the risk of penalties and helps businesses upgrade their tax positions.
Today in this blog, we will discuss why accounting and bookkeeping is crucial under the UAE Corporate Tax regime and how proper financial records can be maintained by businesses.
1. Compliance Associated With Corporate Tax Law
UAE Businesses must maintain proper financial records for at least seven years as prescribed in Article 56 of Federal Decree-Law No. 47. It may result in fines and penalties from the Federal Tax Authority (FTA) if failed to comply with this regulation.
Key Compliance Aspects
- Prepare and maintain financial statements as per International Financial Reporting Standards (IFRS).
- Categorize all the taxable income, deductable expenses and tax exemptions accurately.
- Be prepared in advance for any FTA audits.
2. How to Avoid Errors in Tax Filing and Risk of Penalties
Businesses should file their Corporate Tax returns accurately and on time by maintaining accounting records precisely. Poor bookkeeping can contribute to errors in tax filing that can lead to penalties, where a fine for late or incorrect tax filings is mentioned.
What are the Common Accounting Mistakes
- Misidentification of taxable and non-taxable income.
- Late filing or incomplete tax return submissions.
- Incorrect expense deductions result in understated profits.
What are the Benefits of Maintaining Accounts
- It helps with accurate and on-time tax filings.
- Maintains a transparent record for FTA audits.
- Minimizes the risk of fines and interest fees applicable on non-compliance.
3. Tax Planning Approaches and Optimization
A well-maintained accounting is essential for efficiently identifying tax-saving programmes and managing tax obligations. Accurate bookkeeping helps businesses in financial decision making and you can enjoy tax reliefs and exemptions available under corporate tax framework.
How to plan tax strategies through accounting
- Businesses can reduce their tax liability by claiming small business relief if their annual turnover is under AED 3 million and it is available till 31st December 2026.
- Companies can offset their UAE corporate tax obligations by claiming foreign tax credits if they earn income from abroad.
- Free Zone persons on qualifying income are required to maintain accurate records to continue benefiting from the 0% Corporate Tax rate.
4. Concentrate on Strategic Financial Management
As we all know well-maintained accounting for businesses provides a clear picture of their financial position and this helps them make better decisions. Proper bookkeeping ensures accurate financial data, which is important for regulatory compliance and business growth.
Let's take a look at how good accounting supports business success:
- Analyzing profitability and managing cash flow by keeping track of their revenue, expenses and overall financial performance.
- Businesses can assess new investment opportunities, expansion strategies and resource allocation by simply maintaining financial records.
- Businesses can build trust with banks and investors with transparency in their financial records, enhancing credibility for securing loans and attracting investors.
5. Prepare for Tax Audits Conducted by FTA
The Federal Tax Authority (FTA) has the right to conduct an assessment or audit on a taxable person. During the audit, the company must be in a position to provide all necessary clarification and supportive documents relating to the tax filings done. The failure to provide explanations or documents can lead to administrative penalties. Maintaining proper books of accounts and storing the supportive documents mentioned in the financial statement is the key to facing the FTA audit.
How to be prepared for FTA Tax Audits:
- Maintain detailed and accurate financial records.
- Organize all tax-related documents such as tax invoices, credit notes, contracts and financial statements in an easily retrievable manner.
- Ensure accuracy in tax reporting by performing reconciliations of bank accounts periodically.
- FTA can conduct audits without prior notice. Businesses must prepare for such surprise visits from the authorities.
- Consider engaging with tax professionals, who will guide you on compliance requirements and also help in maintaining proper records.
- Stay informed and up to date on the tax legislation.
6. Transfer Pricing Compliance Management
Businesses engaging in related-party transactions are liable to keep proper accounting records to comply with Transfer pricing regulations. As per Article 34, such transactions must adhere to the arm's length principle for justification.
Essential Transfer Pricing Documents:
- Local and Master files for detailed intercompany transactions.
- Supporting documents including invoices, agreements and contracts for related-party transactions.
Non-compliance with transfer pricing rules can result in FTA adjusting the taxable income and additional tax liabilities.
Suggestions to Practice for Accounting and Bookkeeping in UAE Corporate Tax
One of the main important compliance under corporate tax regulations is to maintain proper records of accounting and bookkeeping. Here are some best practices to be followed:
1) Accounting Software Implementation
- Choose cloud-based accounting software for automated record-keeping and tax calculations. Recommended to use advanced software which is cloud-based for maintaining accounting and tax record keeping.
- Recommended to have FTA-accredited software for accounting which will ease the tax calculation as well as prepare the tax reports at the time of audit.
2) Maintain both Digital and Physical Records
- Even though the authority is specifying either soft copies or hard copies, it is recommended to keep important tax documents both digital backup and physical copies in an easily retrievable manner.
- Maintain records for at least seven years from the end of the tax period.
3) Conduct Internal Audits Regularly
- Regularly review financial statements and tax returns.
- Identify and revise errors before tax filing deadlines.
4) Engage Tax Consultants
- Seek professional guidance to ensure corporate tax compliance.
- Take expert help on transfer pricing and tax exemptions.
How Flying Colour Tax Consultant LLC can Help
Flying Colour Tax Consultant LLC is an FTA-approved Tax Agency and we specialize in accounting, bookkeeping and tax compliance services. Our experts ensure that businesses meet all the UAE Corporate tax requirements.
Our Services Include:
- Accurate and on-time submissions of Corporate Tax returns.
- Ensures preparation of accounting and financial statements as per IFRS standards.
- Assists businesses in preparation for FTA tax audits.
- Assisting in Transfer pricing compliance by ensuring proper documentation and reporting for related-party transactions.
Our experts not only help businesses streamline their tax compliance but also help them minimise penalties and maximise tax benefits.
Conclusion
Accounting and bookkeeping are not only just regulatory requirements, they are also essential for Corporate Tax compliance financial transparency and most importantly business growth. By maintaining accurate financial records businesses can file tax returns precisely, stay audit-ready and reduce the risk of penalties.
For professional guidance and support on Accounting and Bookkeeping in UAE contact Flying Colour Tax Consultant LLC. All you need to focus on is building your business while let us help you take care of your tax compliance requirement.
To learn more about Is Accounting and Bookkeeping a Crucial aspect of UAE Corporate Tax?, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.