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UAE Compliance: Is Your Business Concerned?

UAE authorities are constantly implementing new regulations. It is true to say that starting a new business in the UAE has just gotten a bit more challenging with regulatory requirements at every stage. However, it is meant to keep the UAE as the safest place to conduct business. Hence, new companies need to understand that there are two phases during which these regulations are applicable — when you are starting the business, and when you are running operations.

Let’s follow Ahmed’s journey throughout UAE compliance.

Ahmed, A Successful Entrepreneur

Ahmed launched his Dubai-based jewelry store in late 2019. He is selling jewelry composed of precious stones and metal. This line of business attracts many regulatory legislations and regulations.

Fortunately, Ahmed is a full-fledged Tax, Accounting & Compliance expert. He knew that for the successful incorporation and smooth operation of his business, he must to comply with different legislation and compliances.

First thing first: The Accounting System 

When we think about compliance, the accounting software does not necessarily come to our minds. Hence, having a robust accounting system in place is one of the best compliance practices. It makes sense for any business to set it up as soon as possible. Having accurate company information readily available (in an organized fashion) is crucial to make the right decision.

In Ahmed’s case, he built a strong foundation for his business by having a reliable accounting system in place at the beginning. It helped him to avoid costly mistakes later on. As a businessperson with an accounting background, Ahmed knows a lot about the various aspects of businesses.

For a good and robust accounting system, it is always recommended to have an accounting solution or an ERP in place that makes accounting smooth. Popular tools include Xero, Quickbooks, and Zoho Books to name a few. The most integrated better it is.

Anti-Money Laundering (AML) Law

Long time applicable only to financial institutions, since 2019 the AML regulation applies also to other types of companies. The local authorities named these businesses Designated Non-Financial Businesses and Professions (‘DNFBPs’). DNFBPs are subject to regulations requiring them to identify, assess, and take preventive measures to mitigate any risks of facilitating the transfer of illicit proceeds for money laundering and terrorist financing.  

As Ahmed’s jewelry store has been undertaking a business activity listed in the AML law, he had to register the company on the goAML platform. Although he made one or two mistakes during registration, he promptly addressed those mistakes and avoided penalties.

Diligently, Ahmed did some research to better understand how the regulations affect his business. He figured that his business is a DNFBP, hence, he needs to perform AML checks when they onboard new clients for their business and conduct ongoing monitoring over time, including: 

  1. Customer Due Diligence. An important aspect of this process involves the acquisition and verification of specific information about a client, whether they are an individual or a legal entity, known as Know Your Client (KYC) requirements and additional components where there are additional risks.
  2. Maintaining Records of Transactions. Suppose the authorities ask for information from a DNFBP in the event of an investigation. In that case, the DNFBP must record all transactions with its clients and make the information available to them.
  3. Policies & Procedures. DNFBPs must implement AML policies and procedures for their business.

Ultimate Beneficial Owner (UBO)

UBO came into the UAE compliance picture on the 1st of July 2021. According to the regulations, every business needs to keep an adequate record of its ultimate beneficial owners (UBOs), shareholders, and nominee directors. Therefore, as a business entity, you have to submit your UBO reports to the Ministry of Economy.

So, what does Ultimate Beneficial Owner mean? Owners or parties who own or control more than 25 percent of a company’s shares and/or voting rights. Also, a company’s ultimate beneficiary is the person or party that ultimately gains from making a transaction. A UBO can be either direct or indirect owner of a company.

Like every UAE business, Ahmed’s company is subject to the UBO requirement. Well aware of it, Ahmed came up with the best possible way to comply. He finally reached the point where he was drafting and maintaining the Register of Ultimate Beneficial Owner (UBO) himself.

Value Added Tax (VAT)

While setting up his business, Ahmed registered it for VAT since he expected his firm to make sales well above the threshold. VAT is where things may get a little tricky for business owners. VAT, just like UBO, applies to all the businesses that meet certain threshold requirements. To first determine if the business is eligible for mandatory or voluntary registration, Ahmed carried out due diligence.

The Voluntary Registration Threshold is AED 187,500 while the mandatory registration threshold is AED 375,000. The figures show the sales of taxable supplies that the business has made in the past 12 months or that it expects to exceed in the next 30 days during the current financial year.

After successfully registering his company for VAT, Ahmed was able to file his quarterly return in a timely and adequate manner.

Economic Substance Regulations (ESR)

Among UAE compliance regulations, ESR is meant to force UAE businesses to have substance in the country. Companies carrying out Relevant Activities listed by ESR regulation, need to file an ESR report within 12 months after their financial year-end. Ahmed’s business activity listed on the trade license does not fall under the relevant activities for ESR. So Ahmed didn’t need to do anything regarding ESR.

The UAE requires entities taking part in Relevant Activities to submit an annual notification within six months of the end of their financial year. The notification should include whether the notification maker performed Relevant Activities in the financial year in question and whether there was income derived from that Relevant Activity that was subject to tax outside the UAE. 

What’s Next?

Ahmed makes sure that he is always in conformity with all the legal requirements of the United Arab Emirates. He makes sure that the business complies in an optimum way and that everything is in order. 

It is clear that Ahmed’s understanding of UAE tax, accounting, and compliance requirements deserves acknowledgment. But if you are not a full-fledged accountant tax special & compliance expert, you can still rely on trustworthy professionals to guide you all along the way to success.

If you have any questions regarding Tax, Accounting and/or Compliance, please feel free to drop us an message at [email protected].