Companies are required to preserve their books of account for at least five years after the end of each fiscal year under the UAE Federal Law on Commercial Companies. Legal action can be taken against a firm operating in the UAE with books that are determined to be inaccurate, or if a company fails to maintain books for the required period of time. Accounting and bookkeeping requirements are essential elements of the new UAE Corporate Tax.
Is It Mandatory to Maintain Financial Statements as Per the UAE Corporate Tax?
Companies in the UAE that are subject to corporate tax rates need to prepare their financial statements according to the international reporting standards or the standards that are approved in their region. For instance, a mainland business is permitted to utilize internationally accepted accounting practices and standards which include the GAAP and IFRS (International Financial Reporting Standards).
However, free zone entities are required to follow the standards set by the relevant free zone authority for corporate tax purposes. For instance, the DMCC (Dubai Multi Commodities Centre) free zone registered businesses are only approved to prepare their financial statements in accordance with the specified free zone authority. In the case of auditing financial statements for the purpose of corporate income tax, mainland companies such as limited liability companies, or public or private joint stock companies are required to do financial audits. To maintain reliable financial records in line with IFRS (International Financial Reporting Standards) and other acceptable laws in UAE, businesses in the UAE need the assistance of certified and approved public accountants.
Read More : How to Prepare Financial Statement Audit Before Corporate Tax Commence in UAE
Commercial Companies Law Supporting Accounting and Bookkeeping
Keeping accurate corporate tax accounting in line with the rules in the UAE is essential for any business. If this principle is enforced, firms can stabilize cash flows, prevent bankruptcy, and it enable long-term profitable financial plans and projections. In order to ensure that the company is keeping its books in line with the requirements of the statutory regulations, the partners or shareholders should have access to the essential data.
Accounting Registers
Business registers of books of account must be retained at the company's headquarters in the UAE for a minimum of five years following the end of the fiscal year. Companies uses electronic storage for records and documents in adherence to restrictions set by authoritative bodies. To ensure that shareholders always have a complete and accurate picture of a company's financial health, annual and quarterly reports must be prepared in conformity with International Accounting Standards and Practices.
Accountant's Duty to Compile Financial Statements
It is the duty of a manager to create somehow an effective budget for loss and profit for each year. Moreover, within three months at the end of the fiscal year, management must report the company's financial status and make recommendations to the General Assembly for the distribution of earnings. If the manager fails to accomplish his required duties, he can be made to compensate for losses and can even be dismissed.
What Are the Legal Repercussions Related to Financial Statements in the United Arab Emirates?
Whether one is preparing financial statements and accounting books for value-added tax, or corporate tax purposes, any illegal conduct leads to the following kinds of penalties:
An Absence of Proper Accounting Records on Profits Distribution
Experts in corporate taxation state that all businesses must establish and maintain books of accounts in compliance with related to Federal Laws. This mainly stresses the legal distribution of profits among different shareholders and partners. Failure to retain the necessary records on legal distribution or if any illegal distribution is found, a penalty of the amount of AED 50,000 - AED 500,000 along with a maximum of 3 years of imprisonment for the illegal conduct will be inevitable.
Providing False Financial Statements
Businesses must preserve their books of accounts in their relevant headquarters in the purest form including accurate data on losses, profits, and balance sheets. If any misinformation or false statements have been given by liquidators, auditors, or any company manager, imprisonment of as much as 3 years can be imposed. Companies that fail to maintain accurate and pure financial statements face fines of 100,000 to 500,000 AED.
Choose Corporate Tax Advisory Services
It immensely essential to seek expert consultation from trusted and approved Corporate Tax firms in order to have an in-depth understanding of the applicability and impact of corporate tax to business. Corporate Tax consultants in UAE provide top-notch Corporate Tax services. So, do not hesitate to contact us today and we shall be happy to assist you.
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