Overview of Audit Requirements under UAE CT Laws
The United Arab Emirates (UAE) has implemented corporate tax laws that require companies to prepare and maintain Audited Financial Statements. These Audited Financial Statements should be conducted by a licensed UAE auditor and must follow the generally accepted accounting principles.
The purpose of the audit is to ensure that there are no misstatements in the financial statements, whether due to error or fraud. The audit report will include a comment on the accuracy and confidentiality of these statements, as well as any material findings or recommendations.
Financial Reporting and Record Keeping requirements for Taxable Persons
The Taxable Income of each Taxable Person shall be determined on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State.
As per the article 54 of Federal Decree-Law No. 47 of 2022, authorities may ask to submit financial statements used to determine the taxable income for a tax period. This can be interpreted to mean that all taxable persons are supposed to prepare financial statements for relevant tax periods.
While not all taxable persons are required to maintain audited financial statements, though it is necessary for all taxable persons to maintain business records and documents for a period of seven years following the end of the tax period to which they relate, to support the information to be provided in a tax return or to enable the authority to ascertain taxable income of taxable persons.
Categories of Taxable Person required to prepare and maintain Audited Financial Statements
As per Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses the following categories of Taxable Persons shall prepare and maintain audited financial statements:
- A Qualified Free Zone Person.
- A Taxable Person deriving Revenue exceeding AED 50,000,000 (AED Fifty Million) during the relevant Tax Period.
A Qualified Free Zone Person is a person who is licensed to carry out a commercial, industrial, or service activity in one of the free zones in the UAE and who meets the following conditions:
- Maintains adequate substance in the State;
- Derives Qualifying Income;
- Has not elected to be subject to Corporate Tax under Article 19; and
- Complies with other regulations as specified in UAE CT Law and Meets any other conditions as may be prescribed by the Minister.
A Taxable Person deriving revenue exceeding AED 50,000,000 (AED Fifty Million) during the relevant tax period is any person who carries out a commercial, industrial, or professional activity in the UAE that is subject to tax and whose annual revenue exceeds AED 50,000,000 (AED Fifty Million) during the relevant tax period.
Categories of Taxable Person required to prepare and maintain Audited Financial Statements
As per Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses the following categories of Taxable Persons shall prepare and maintain audited financial statements:
- A Qualified Free Zone Person.
- A Taxable Person deriving Revenue exceeding AED 50,000,000 (AED Fifty Million) during the relevant Tax Period.
- A Qualified Free Zone Person.
A Qualified Free Zone Person is a person who is licensed to carry out a commercial, industrial, or service activity in one of the free zones in the UAE and who meets the following conditions:
- Maintains adequate substance in the State;
- Derives Qualifying Income;
- Has not elected to be subject to Corporate Tax under Article 19; and
- Complies with other regulations as specified in UAE CT Law and Meets any other conditions as may be prescribed by the Minister.
- Maintains adequate substance in the State;
A Taxable Person deriving revenue exceeding AED 50,000,000 (AED Fifty Million) during the relevant tax period is any person who carries out a commercial, industrial, or professional activity in the UAE that is subject to tax and whose annual revenue exceeds AED 50,000,000 (AED Fifty Million) during the relevant tax period.
Requirement of Audited Finance Statement under other UAE Laws
UAE CT Law currently requires only two categories of taxable person to prepare and maintain Audited Financial Statements.
However, Companies which are not required to maintain Audited Financial Statements under UAE CT Law, they may be required by any other UAE Law for the same.
Below is the list of some of the UAE laws / authorities which may require you to prepare and maintain Audited Financial Statements:
- Free Zone Authorities as per various Free Zone Laws.
- Dubai Financial Services Authority.
- Abu Dhabi Global Market.
- Securities and Commodities Authorities.
- Commercial Companies Law, 2015
Please keep in mind that the specific financial reporting and auditing requirements may vary depending on the regulatory authority, free zone regulations, and other factors.
It’s advisable to consult with a professional accountant or legal advisor to ensure compliance with the applicable laws and regulations for a specific company.
