The UAE Corporate Tax System, which has been implemented from 1 June 2023, requires all taxable persons to prepare and maintain financial statements in accordance with the accounting standards specified by the Ministry of Finance.

The financial statements must accurately and fairly present the taxable income and tax liability of the taxable persons for each tax period. The Federal Tax Authority (FTA) has the authority to require a taxable person to submit the financial statements for a tax period. The FTA will instruct the taxable person on the method and deadline for submitting the financial statements. The FTA can also request a taxable person to furnish additional information or documents related to the financial statements.

What Is an Audit Report and Why You Need It for the Corporate Tax System

An audit report is a document that provides an independent opinion on the accuracy and completeness of the financial statements of a business. An audit report is important for the CT system because it helps to ensure that the taxable income and tax liability of a business are correctly calculated and reported. An audit report also enhances the credibility and transparency of the financial information of a business and reduces the risk of tax evasion and avoidance.

Purpose and Benefits of Audit Report

The main purpose of an audit report is to provide assurance to the FTA and other stakeholders that the taxable person has complied with the CT law and reported its income and expenses accurately and fairly. An audit report also helps the taxable person to identify and rectify any errors, omissions, or discrepancies in its financial statements, and to improve its internal controls and governance processes. Some of the benefits of an audit report for the taxable person are:

It enhances the credibility and reliability of the financial statements and the CT return and reduces the risk of penalties, disputes, or adjustments by the FTA.

It facilitates access to finance, investment, and business opportunities, as the financial statements and the CT return are verified by an independent and qualified auditor.

It provides insights and feedback on the performance, efficiency, and profitability of the business, and helps the taxable person to make informed decisions and strategic plans.

How to Calculate Taxable Income for the UAE Corporate Tax System

To calculate Taxable Income, a Taxable Person needs to follow these steps:

First, they have to find out their Accounting Income based on their Financial Statements. The Financial Statements must follow the accounting standards that are accepted in the UAE (IFRS or IFRS for SMEs). If the Taxable Person is a Qualifying Free Zone Person or has a revenue of more than AED 50 million, they also have to get their Financial Statements audited.
Second, they have to make the necessary adjustments to their Accounting Income according to the Corporate Tax Law. This will give them their Taxable Income amount. A Taxable Person has to file a Tax Return with the FTA within 9 months after each Tax Period ends.

Audit Report Requirements for the UAE Corporate Tax System: Who Needs to Comply and How

An external licensed auditor must verify the Financial Statements of some Taxable Persons. Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This decision provides that the following Taxable Persons shall prepare and maintain audited financial statements:

A Taxable Person deriving Revenue exceeding AED 50,000,000 (fifty million United Arab Emirates dirhams) during the relevant Tax Period.
A Qualifying Free Zone Person.

Audit Report and Financial Statements for Partnerships

The Minister of Finance can decide that some types of taxable persons have to prepare and keep financial statements that are audited or certified by a third party. The UAE Corporate Tax System also applies to partners in an Unincorporated Partnership. The FTA can ask a partner in such a partnership to provide financial statements that show the following information:

The total assets, liabilities, income, and expenditure of the Unincorporated Partnership.
The partner’s distributive share in the Unincorporated Partnership’s assets, liabilities, income, and expenditures.

The partner must prepare and maintain the financial statements in accordance with the accounting standards specified by the Ministry of Finance. The partner must also submit the financial statements to the FTA if requested.

Preparation and Submission of Audit Report

The preparation and submission of an audit report for CT purposes involves the following steps:

Appointment of auditor

The taxable person must appoint and remunerate an auditor who is licensed and registered by the competent authorities of the UAE, and who is independent of the taxable person and its related parties.

Provision of information and documents to the auditor

The taxable person must provide the auditor with all the necessary information, documents, and records related to its business activities, income, expenses, assets, liabilities, and transactions, as well as its financial statements and CT return.

Audit standards and procedures

The auditor must conduct the audit in accordance with the auditing standards specified by the Ministry of Finance in the UAE (IFRS or IFRS for SMEs), and apply the relevant accounting standards and the CT law to the financial statements and the CT return of the taxable person.

Audit report and opinion

The auditor must prepare and sign the audit report, and express an opinion on whether the financial statements and the CT return of the taxable person are prepared in accordance with the applicable accounting standards and the CT law, and whether they present a true and fair view of the financial position and performance of the taxable person.

Submission of audit report

A taxable person may be required to submit the financial statements used to determine the taxable income for a tax period in the form and manner and within the timeline prescribed by the FTA.

How to Write an Effective Audit Report for a CT System: Best Practices and Tips

Some of the best practices and tips for preparing an audit report for the CT system are:

Choose a qualified and reputable auditor who has experience and expertise in the UAE tax environment and the industry of the business.
Maintain proper accounting records and supporting documents that are consistent with the accounting standards and the CT system.
Communicate with the auditor regularly and provide all the necessary information and explanations that are requested by the auditor.
Review the draft audit report and discuss any findings or recommendations with the auditor before finalizing the report.
Submit the audit report to the FTA in a timely and accurate manner and keep a copy of the report for future reference.

How may Farahat & Co. assist you?

Farahat & Co. is one of the top audit firms in Dubai that can assist you with audit reports for corporate tax in UAE. Here are some of the services they offer:

Financial statement audit report for corporate tax in UAE: They provide quality financial statement audits that comply with the auditing standards specified by the Ministry of Finance and the corporate tax law. They also help you prepare and file your corporate tax return with the FTA.
Corporate tax advisory services: They have a team of experts who can help you navigate the corporate tax system and advise you on the best practices and strategies to optimize your tax position. They can also assist you with tax disputes, reconsiderations, and voluntary disclosures.

If you need any of these services, you can contact Farahat & Co.

Read More : Introduction of Federal Corporate Tax in UAE .