Tax compliance is not simply filing tax returns and paying the tax liability. However, it is more than that. One of the prime tax responsibilities includes maintaining UAE tax records or documentation. Therefore, businesses must strive to put in place systems and procedures built into the organization that keep and store relevant records. Most of the business documents are similar for financial and tax purposes. However, the tax regulations require preservation of documents for a specified period of time. In this blog, we learn the basics of tax record-keeping in the UAE that every taxable person must know.
What Records Must UAE Businesses Legally Maintain?
In the UAE, businesses must meet financial records compliance, and therefore, noncompliance will result in penalties. The resultant penalty can go up to AED 20,000. From keeping required business registration documents, trade licenses, and other business-related documents, firms need to maintain records for every transaction for a specified period of time. For instance, for tax purposes, a business might need to keep relevant documents for a minimum of 7 years from the end of the relevant tax period. Tax records are generally categorized into two main areas:
- Corporate Tax
- Value-Added Tax
Let’s understand the legal record maintenance requirements for both tax responsibilities.
Corporate Tax Records
Companies that are required to register for corporate tax must also maintain relevant corporate tax documents. As the taxable computations rely on accounting figures, accounting records (such as financial statements) are indirectly mandatory.
The general rule (Article 56) for record-keeping is that it includes documents:
- Supporting the information provided in the tax return and other documents required to be filed with the FTA.
- Enabling the tax authority to ascertain the taxable income of the taxable entity.
The documents maintained should typically include records of, but are not limited to:
• entity’s transactions in the tax period
• business assets, including details of any purchases or disposals
• business liabilities
• any stock held by the taxable entity at the end of the tax period.
The said records will enable firms to identify their legal obligations. However, we recommend consulting an expert such as CZTA for updated guidance.
Value-Added Tax Records
Similarly, firms need to maintain records for VAT as well. The UAE VAT Law clearly entails the following tax documentation for value-added tax purposes.
- Records of all supplies and imports of goods and services.
- All tax invoices and supporting documents related to receiving goods or services.
- All tax credit notes and supporting documents
- All tax invoices and accompanying documents
- All tax credit notes and additional issued documents.
- Records of goods and services that have been disposed of or used for matters not related to business, with the taxes paid.
- Records of goods and services purchased, and there is no deduction of the input tax.
- Records of exported goods and services.
- Records of adjustments or corrections made to accounts or tax invoices.
- Records of any taxable supplies made or received in accordance with Clause (3) of Article 48 of the UAE VAT Law.
Furthermore, firms must also maintain records with information on:
- due tax on taxable supplies,
- due tax after any adjustment for error correction
- recoverable tax
- recoverable tax after any adjustment or error correction
How Long Should Tax Records Be Retained?
As per Article 56 of the Federal Decree-Law No. 47 of 2022, taxable persons must maintain corporate tax records for a period of 7 years from the end of the relevant tax period. Similarly, an exempt person must also keep the records and documents for 7 years from the end of the relevant tax period in which the exemption is claimed.
On the other hand, firms must retain VAT records for a minimum period of 5 years from the end of the relevant tax period to which they relate (Executive Regulation 2017 on Tax Procedures). However, the real estate sector must keep relevant records for a minimum of 15 years.
It is the responsibility of the respective business to ensure the safety of records, including digital records.
Which Records Are Most Frequently Reviewed?
Depending on the nature of the review, tax regulations allow the tax authority to examine the tax records of an entity. As per the Executive Regulation 2017 on Tax Procedures, the tax authority may access the following during a tax audit:
a. The premises
b. The documents that are available at the premises.
c. The assets that are available at the premises.
d. The accounting systems.
Specifically, the tax auditor may inspect any of the following documents, but not limited to:
- Financial statements, including ledgers
- Bank statements
- Invoices including supporting documents
- Tax returns and supporting documents (Corporate & VAT)
- Transfer pricing documentation
- Asset register
- Payroll records
Furthermore, the tax auditor may access more documents deemed suitable for conducting their audit. In addition to an audit, the tax authority can also request documents during the filing process. Compliant tax records will usually result in less occurences of tax audit and scrutiny in the UAE.
Why Poor Documentation Increases Risk?
Incomplete or poor documentation is risky from both perspectives: operations and compliance. When everything is out of order, it reflects in the overall operations of a business. Therefore, it is always beneficial to put in place the best corporate governance practices and standard operating procedures. As they include record-keeping and maintenance as per the relevant juridical laws.
With respect to compliance, poor documentation increases the risk of penalties. Violations in tax record-keeping for both corporate tax and VAT result in penalties in the UAE.
Failure of a taxable person to keep the required corporate tax records will result in one of the following penalties (Cabinet Decision No. 75 of 2023):
• AED 10,000 for each violation;
• AED 20,000 in each case of repeated violation within 24 months from the date of the last violation
Similar penalties apply in case of violations concerning the VAT records. (Cabinet Decision No. 49 of 2021)
- AED 10,000 for first-time violation
- AED 20,000 in case of repetition.
Non-compliance not only results in financial losses but also reputational losses. Furthermore, if an entity faces a tax audit due to consistent bad documentation, it will divert a business’s core operations. Therefore, firms must put systems and procedures in place to maintain proper tax records.
Summary
One of the primary tax compliance responsibilities is tax documentation in the UAE. Therefore, it is mandatory to streamline tax record-keeping following the UAE laws. Both corporate and value-added taxes are applicable in the UAE jurisdiction; therefore, entities must maintain tax records for both to attain tax compliance. Furthermore, keeping required documents is one responsibility; entities must also retain the records for a specified period of time. Generally, companies must keep corporate tax documents for a minimum of 7 years and VAT records for a minimum of 5 years. However, the real estate businesses must retain VAT records for 15 years. There are continuous changes and updates in laws and regulations; therefore, it is ideal to consult a tax expert.
Creative Zone Tax & Accounting (CZTA)
As a tax consultant, CZTA has a team of qualified tax consultants, including FTA-accredited tax agents. Therefore, your business will be compliant with the UAE tax records without a doubt, plus we also provide ancillary services. From basic-level accounting to advanced-level planning and optimization, we provide a range of services for every business. Contact us to learn more.
