Over the last few decades, Dubai has seen enormous growth and development. It has established itself as a global business destination due to its diverse economy, which extends across sectors such as trade, tourism, real estate and finance. One crucial aspect of doing business in Dubai, or anywhere else in the world, is Accounting. But is accounting mandatory in Dubai?
In this blog, we shall find out whether Accounting is a legal requirement in Dubai
Accounting is the systematic process of recording, summarizing, analyzing, and reporting the financial transactions of a business. It provides crucial insights into a company’s financial health and performance, helping business owners make informed decisions and comply with various legal and regulatory requirements. In order to keep your business viable, it is essential that you have clean and up-to-date financial records. There are several reasons why this matter is of great importance to your business, large or small!
- It assists in the evaluation of business performance.
- It ensures Statutory Compliance.
- It helps to put together the budget and future projections.
- It facilitates the filing of financial statements.
Accounting is mandatory for all businesses in Dubai
Here’s the answer to this:
Maintenance of books of accounts under VAT Law:
VAT was introduced in the UAE on 1st January 2018. In order to ascertain the results of any activity, all business establishments and taxable entities which have registered in the United Arab Emirates under the VAT Law is required to maintain a proper book of accounts by recording day-to-day business transactions. Executive Regulation provides the list of accounting records to be maintained and procedures for maintenance of the same. The books of accounts for any financial year have to be preserved for a minimum period of five years. Failure to keep the required records will attract a penalty of AED 10,000 for the first time and AED 50,000 for repetition.
Accounting Records as per Commercial Company Law:
As per the Federal Law related to Commercial Companies, every company shall maintain accounting records showing its transactions. Such records should accurately and at any time demonstrate the Company’s financial standing. The partners and shareholders should verify that the Company’s accounts are maintained as per the provisions of this Law. The company shall maintain its accounting records at its head office for at least five (5) years from the company’s fiscal year-end date.
The Companies are also required to prepare annual financial accounts, including budget statement and profits and losses account. The international accounting standards and principles are applied while preparing the interim or annual accounts of the company, to clearly and accurately reflect it’s profits and losses.
Maintenance of books of accounts under Corporate Tax (CT) law:
As per the CT law, the financial statements are required to be prepared and maintained by the taxable person, for the purpose of calculation of their taxable income. The taxpayers should also ensure the availability of all documents and records that support the information provided in the CT return. Both the taxable person as well as exempt person should maintain all relevant records for a period of seven years following the end of the tax period to which they relate.
As per the Ministerial Decision, all the accounts/statements need to be prepared on an accrual basis as specified under the Accounting Standards applied. In case the turnover of the business does not exceed AED 3 million or under exceptional circumstances, a Cash basis of accounting may be allowed.
All taxable persons should apply IFRS for the preparation and presentation of financial statements, however, taxable persons deriving revenue up to AED 50 million may opt for IFRS applicable for SMEs (there is a separate set of IFRS for SMEs)
Books of accounts to be maintained for Audit purposes.
Submission of audited financial statements is a must for the following persons:
- Free Zone or Mainland Authorities may request for the audited financial statement at the time of renewal of business licenses.
- Free Zone Authorities like Dubai Multi Commodities Centre (DMCC), Dubai World Central (DWC), Dubai Airport Free Zone (DAFZA), Jebel Ali Free Zone (JAFZA), Dubai Silicon Oasis (DSO) and Dubai International Financial Center (DIFC), etc require their Companies to submit the Audited financial statements.
- The submission of audit reports and audited accounts of the branches of foreign companies established in the United Arab Emirates is mandatory for foreign companies.
- Companies under Liquidation are required to prepare the Liquidator’s Audit Report, for this purpose they require Audited financial statements.
- Bankers would require you to submit the audited financial statement to increase the loan or value your creditability and so on.
It is apparent that accounting records and documents must be available and maintained in a satisfactory way to complete the audit of accounts and submit audited financial statements.
The specific accounting requirements for your business will depend on various factors, including its legal structure, industry, and taxation status. To ensure compliance with local laws and regulations and to harness the benefits of accurate financial reporting, it’s advisable for businesses in Dubai to establish sound accounting practices or seek professional accounting services. Ultimately, proper accounting not only helps you stay on the right side of the law but also contributes to the success and sustainability of your business in this dynamic and ever-evolving global business hub.