The new corporate tax regime in the UAE highlights various aspects of managing businesses. The imposition of corporate tax doesn’t only mean calculating and paying taxes. It has impacted the very nature of managing a business. One of the key aspects of this business management evolution is maintaining financial records for corporate tax purposes. The corporate tax law, Federal Decree-Law No. 47 of 2022, provides guidelines for maintaining records. In this blog, we will discuss the rules for maintaining financial records for corporate tax in the UAE.
Maintaining Financial Records for 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 the UAE law.
Financial Statements
As per Article 54 of the tax law, the Authority may request a taxable person to provide the financial statements. This is to determine the taxable income for a relevant tax period. The Authority may also request that the financial statements be in the desired manner and form. Furthermore, the Minister may require some categories of taxable persons to prepare and submit audited financial statements.
The Authority may request a partner in an unincorporated partnership to provide financial statements for the partnership. These financial statements should reveal the following details:
a) Total assets, liabilities, income, and expenses of the unincorporated partnership
b) The distributive share of the partner in assets, liabilities, income, and expenses of the unincorporated partnership
Transfer Pricing Documentation
Businesses should maintain proper records with respect to their transactions with related parties.
As per Article 55, the Authority may request the taxable person to disclose transactions and arrangements with related parties. It might be requested along with the submission of the tax return. If the transactions with related parties meet the stated conditions, the taxable person will have to maintain master as well as a local file in the form requested by the Authority.
The Authority may also request the taxable person to provide documents with respect to the arm’s length nature of transactions. These documents should be submitted to the Authority within 30 days following the request. However, the Authority may set a later date for submission.
Record Keeping
A taxable person must keep all the records and documents for at least 7 years from the end of their tax period. The records should include all the supporting documents and for the tax return. Furthermore, the records and documentation must enable the Authority to determine the taxable income of the taxable person.
An exempt person also must keep records and documentation for a period of 7 years from the end of the tax period. These records must enable the Authority to establish the exempt taxable status of the taxable person.
The Importance of Maintaining Financial Records for Corporate Tax
Precise financial record-keeping is vital for corporate tax compliance in the UAE, including tax-exempt entities. Records must be retained for seven years beyond the tax period. Tax group entities can consolidate statements if composed of UAE resident entities in the group. Meticulous record-keeping is not just about compliance; it’s crucial for sound financial management. It’s a legal requirement, ensuring adherence to tax laws to avoid penalties and legal issues.
Accurate records are essential for precise tax calculations, preventing over/underpayment and potential audits. They also promote transparency, building trust with stakeholders like investors and regulators. These records support informed decision-making, offering insights into financial performance, project feasibility, and efficiency. In essence, in the UAE, maintaining accurate financial records is both a regulatory obligation and a strategic tool for financial stability and success.
Conclusion
In conclusion, keeping good financial records is a must under corporate tax laws in the UAE. It’s not just about paying taxes; it changes how businesses work. You have to keep track of things like financial statements, transaction details, and documents. This helps you follow the law, build trust with stakeholders, and make smarter choices for your business. Plus, having solid records gives you a clear picture of how your business is doing over time. So, it’s not just about taxes; it’s about making your business better all around.
Creative Zone Tax & Accounting
In the UAE, the subject of corporate tax is new. Therefore, there is a need for a proper understanding of the tax law in order to remain compliant and avoid penalties. Maintaining financial records is crucial for businesses to remain compliant with UAE laws. We have a team of tax experts who will cater to all your tax needs. You can contact us for any of your tax matters.
