The new tax regime in the UAE not only brings corporate tax responsibilities but also changes business management. For instance, the calculation of corporate tax requires data that depends on various business documents, such as financial statements. Therefore, there is now a need to manage books that satisfy the tax authorities. Maintaining books in light of corporate tax requires a proactive approach during the entire tax year. Therefore, a proper understanding of the corporate tax law in this regard is important for any business. This blog shares key information regarding the management of corporate books.
Maintaining Books in Light of Corporate Tax
As per clause 3 of Article 53, a taxable person shall provide the authority with all the information and records necessary for the implementation of corporate tax law. This means that a business should maintain financial records. Let’s discuss the particulars of the records required as per UAE law.
Financial Statements
The authority can request a taxable person to submit the financial statements used to determine the taxable income. This will be in the form, manner, and timeline prescribed by the authority. Furthermore, the Minister may require some categories of taxable persons to prepare and submit audited financial statements. Common financial statements include the balance sheet, income statement, cash flow statement, and statement of changes in equity.
The financial statements must be based on the accrual basis of accounting. However, there are instances where a business can use a cash basis of accounting. Under the Ministerial Decision No. 114 of 2023, a taxable person may prepare financial statements using the cash basis of accounting in any of the following instances:
- Where the revenue of the taxable person does not exceed AED 3,000,000 (three million United Arab Emirates dirhams).
- In certain exceptional circumstances and under an application submitted by the person to the authority.
The authority may request a partner in an unincorporated partnership to provide financial statements for the partnership. These financial statements shall show the following particulars:
- Total assets, liabilities, income, and expenses of the unincorporated partnership.
- The distributive share of the partner in assets, liabilities, income, and expenses of the unincorporated partnership.
Transfer Pricing Documentation
One key area for businesses is managing transactions with related parties, and it’s important to keep accurate records of these dealings. According to Article 55, the tax authority may ask businesses to disclose details about their transactions and arrangements with related parties, sometimes along with their tax return. If certain conditions set by the Minister are met, businesses must prepare both a master file and a local file in the format specified by the authority, submitting them within 30 days of the request, unless an extension is granted.
The authority may also require businesses to provide documents proving that these transactions follow the arm’s length principle, which ensures they reflect fair market value. These documents, too, must be submitted within 30 days of the request, though an extended deadline may be allowed.
Record Keeping
Any taxable person must retain all records and documents for at least 7 years from the end of the relevant tax year. What constitutes these records? This is simply any document and record that supports the information provided in the tax return. The tax authority should be able to access the taxable income from these documents.
Furthermore, what about if the business is exempt from corporate tax? In this case, the taxable person must still retain their records and documentation for at least 7 years from the end of the tax period. These records should help the authority confirm the exempt status of the taxable person at any time.
The Importance of Maintaining Books in Light of Corporate Tax
The importance of maintaining books in light of corporate tax does not only fulfill compliance requirements; it has other benefits too. Firstly, if you keep every document intact as per the corporate tax laws, this will save you time during the submission of your tax return. Secondly, the taxable person or the business will avoid penalties. Thirdly, if you maintain proper records, you will not only excel in tax responsibility but also bring transparency to your business. Consequently, this will build trust with stakeholders, including investors, customers, and partners. Fourthly, with sound documentation, a business will be able to make better decisions. Lastly, maintaining proper records will benefit the business in many ways in the short term as well as the long term.
Conclusion
Maintaining books in light of corporate tax is a proactive approach that keeps a business complaint and brings other benefits. A business’s prime documents are its financial statements, which mostly include the balance sheet, income statement, and cash flow statement. The taxable income is usually based on the figures (sometimes with adjustments) from these financial statements. Therefore, the tax authority may request the business to submit financial statements. The second important document is any record that deals with the dealing of the business with related parties. The tax law provides sufficient information on this topic. Any document that supports the taxable income must be in the records for at least 7 years from the end of the relevant tax year. Every business must strive hard to keep documentation and records as per the legal term.
Creative Zone Tax & Accounting (CZTA)
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