Maintaining accurate financial records and preparing comprehensive financial statements is crucial for taxpayers in the United Arab Emirates (UAE) to calculate their taxable income and comply with corporate tax regulations. In this blog post, we will outline the general requirements for record-keeping, discuss the importance of audited financial statements, and highlight the significance of currency and exchange rates in tax reporting.
General Requirements for Financial Record-Keeping:
Taxpayers are expected to prepare and retain financial statements that support the information provided in their corporate tax returns or any other filings with the tax authority. It is essential to maintain all relevant documents and records for at least seven years after the end of the relevant tax period. Additionally, exempt persons must keep records to substantiate their exempt status.
Stand-Alone Financial Statements for UAE Corporate Tax:
The consolidated financial statements of a group cannot be used for preparing UAE corporate tax returns, except when the group solely consists of UAE resident entities that have formed a Tax Group. In all other cases, each UAE entity subject to corporate tax must prepare and maintain stand-alone financial statements specifically for UAE corporate tax purposes.
Audited Financial Statements:
Entities subject to UAE corporate tax are generally not required to have audited financial statements. However, a specific category of taxable persons, including tax groups, as determined by a decision issued by the Minister, may be required to prepare and maintain audited or certified financial statements. The Federal Tax Authority reserves the right to request financial statements alongside the corporate tax return or ask for them upon request.
Currency and Exchange Rates:
All income, deductions, and credits for taxpayers must be measured in the national currency of the UAE, which is the Emirati Dirham (AED). Income derived or expenses incurred in a foreign currency need to be converted into AED for tax reporting purposes. Taxpayers are responsible for translating foreign currency amounts on a transaction-by-transaction basis. This means that income received in foreign currency should be converted into AED at the time of its realization, while deductible expenses in foreign currency should be converted into AED at the time they are incurred.
Conversion of Foreign Currency to AED:
When translating foreign currency transactions into AED, taxpayers must use the applicable exchange rate set by the Central Bank of the UAE, unless the Federal Tax Authority grants permission to use an exchange rate that more accurately reflects the taxpayer’s income.
Compliance with financial record-keeping and reporting requirements is essential for taxpayers subject to UAE corporate tax. By maintaining proper records, preparing stand-alone financial statements, and accurately converting foreign currency amounts into AED, businesses can ensure compliance with tax regulations and avoid potential penalties. It is advisable to stay updated with any changes or updates in tax laws to ensure accurate reporting and fulfillment of obligations to the tax authority.
Registered Tax Agency and Agents
Tax Agency Registration Name: PARKER RUSSELL OBAID AUDITING
Tax Agency Registration Number: 30000269
Tax Agent Registration Name: Mansour Abdulwahab Mohamed Ahmed
Tax Agent Registration Number: 20037867
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