Are you planning to start a business in the UAE? Have you already successfully launched your company? There are entrepreneurs and business owners who want to turn the risks of time, money, and effort into a vision of building a business that brings solutions for the future. But often, these 3 things to consider when starting a business in UAE are left behind: Tax, Accounting and Compliance. It’s only when they expand their business and face issues that they realise the importance of these 3 essential topics.
In fact, to stay organised, increase efficiency, obtain financing, control expenses, identify risks, and position themselves for success, these 3 topics are essential.
Whether you have launched or are planning to launch your company in the mainland or in a Free Zone, you will need to get your company ready for the Tax, Accounting, and Compliance requirements in the UAE.
Accounting Considerations While Starting a Business in UAE
Accounting and bookkeeping offer different perspectives on the financial health of your company, and both are crucial. Bookkeeping refers to documenting and keeping up with a company’s transactions and cash flow. By the same token, accounting tends to provide a clearer picture of your company’s financial standing and future prospects and does so by interpreting and synthesizing the financial picture created by bookkeepers and turning it into documents such as profit and loss statements, balance sheets, and year-over-year comparisons.
For the purposes of valuing and analyzing a company’s credit, financial statements provide valuable information to investors. Understanding business accounting and the principles guiding the development of financial statements is vital for this reason. By understanding a company’s financing sources, computing profitability, and estimating risks embedded in the balance sheet, accounting helps investors determine an asset’s value. Businesses in the UAE are generally required to keep their records for at least five years.
In some cases, the Commercial Companies Law requires that all mainland companies undergo an audit of their accounts. Some free zones, particularly in northern emirates, do not require that an audited statement of accounts be submitted by companies; it is important to know that the waiver is only applicable for presenting the audit report to the authorities; the preparation of the audit report itself cannot be overlooked.
Tax Considerations While Starting a Business in UAE
There are no corporate income taxes, withholding taxes or capital gains taxes in the UAE. Taxes on goods and services are limited to VAT only in the UAE.
VAT is an indirect tax imposed on goods and services consumed and used. The tax is collected at every stage of the supply chain. VAT is a price paid by consumers, with registered businesses collecting and accounting for it on behalf of the government.
Despite the fact that VAT is a price paid by the consumer, businesses do have to register in order to be eligible for any tax credits or refunds. There are two types of VAT registrations; voluntary and mandatory.
- Mandatory Registration: Businesses that sell or import taxable supplies into the UAE whose value exceeds AED 375,000 for the last 12 months or within the next 30 days must register for VAT.
- Voluntary Registration: If the total amount of taxable supplies and imports from UAE businesses for the past 12 months or for the next 30 days exceeds AED 187,500, businesses can voluntarily register for VAT. Startups and small businesses with expenses over the threshold can voluntarily register, earning the tax credit.
Basically, supplies can be categorized into two categories: Taxable supplies, which are rated at 5% standard or 0% standard, and exempted supplies, which are not taxable in the UAE. Taxes of 5% are imposed on almost all goods and services except in cases of exemption or 0% tax.
Corporate Income Tax
Businesses will have to pay corporate income tax starting in financial years beginning on or after the 1st June 2023. The UAE corporate tax regime is set to have a standard tax rate of 9 percent (9%) and a zero percent (0%) tax rate on taxable profits up to AED375,000 to encourage startups and small businesses. All UAE companies will be subjected to the Corporate Income Tax. However, the UAE corporate tax scheme will continue to offer incentives to Free Zone companies that comply with regulatory requirements and do not conduct business with mainland UAE.
Compliance Considerations While Starting a Business in UAE
The federal government and state governments enforce compliance regulations in the UAE. All companies are required to comply with these regulations. The UAE has strict regulations that need to be followed by companies operating in the UAE. Compliance is required in the following three areas:
1. Economic Substance Regulation (ESR)
UAE economic substance requirements apply to all companies and economic entities with onshore or offshore operations, based in the UAE and operating in a free zone, as well as certain other forms of business that carry out a relevant activity for financial years beginning after 1 January 2019.
Businesses in the UAE should evaluate which of their activities are subject to economic substance regulations, and ensure they are meeting those requirements for each relevant activity. The assessment evaluates both qualitatively and quantitatively and takes into account operational, financial, taxation and accounting, legal and governance issues.
2. Ultimate Beneficial Ownership (UBO)
In accordance with the UBO Regulations, introduced last year by Cabinet Resolution No. 58/2020, all companies based in the UAE – other than those wholly owned by local or federal government entities, or those incorporated in the DIFC or ADGM financial free zones – must record information regarding their ultimate beneficial owners (UBOs), shareholders, and nominee directors. This means that as a business entity, you have to submit your UBO reports to the Ministry of Economy.
3. Anti-Money Laundering (AML)
Is your business a DNFBP? DNFBP or Designated Non-financial Businesses and Professions encompasses a wide range of business activities, including real estate sales and purchases, precious metal and precious stone dealers, trust and company service providers, auditors, accountants, and lawyers.
A DNFBP company can also be defined as one that engages in certain business activities that are listed on their trade license in accordance with the International Standard of Industrial Classification (ISIC).
If your business falls in the above-mentioned businesses, it is your responsibility as a DNFBP to ensure that your internal operations comply with the full extent of AML obligations under the UAE’s legal framework. DNFBPs can expect UAE officials to be much more proactive in overseeing these functions in the future, especially in improving the compliance framework and boosting team member awareness.
The Secret? Surround Yourself With The Right Partner
Remember, failure to comply with any local regulation can lead to very unfortunate sanctions like heavy penalties or the suspension of the business license. You should ensure that your company complies with all the state’s laws and regulations. However, it is not always easy to stay updated with the latest law and regulations. The UAE is a fantastic country that constantly evolves to maintain its high standards.
You might require a professional support you can count on. As an Approved Federal Tax Agency, Creative Zone Tax & Accounting is one of the most indicated partner to help UAE businesses to handle their tax, accounting and compliance requirements. If you have any questions, write to us at [email protected].