Conducting audits is crucial for ensuring corporate tax compliance in the United Arab Emirates (UAE). The Ministry of Finance’s Ministerial Decision No. 74 of 2023 outlines procedures for corporate tax audits, aiming to validate disclosed information and verify adherence to tax laws.
Mandatory Audited Financial Statements
As per Ministerial Decision No. 82 of 2023, maintaining and preparing audited financial statements is mandatory for:
- Entities with annual revenue exceeding AED 50,000,000.
- Qualifying Free Zone Persons.
Audit Requirements for Mainland Companies
Federal Decree-Law No. 32/2021 mandates that all companies established on the UAE mainland undergo financial audits. Key points include:
- Mandatory Audit: External audits are legally required to assess financial statements, activities, and compliance with accounting practices and laws.
- Record Keeping: Companies must retain financial records for at least five years to meet legal obligations.
Audit Requirements for Free Zone Companies
Free zones in the UAE have their own regulations governing audit requirements:
- Not Necessarily Audited: Not all free zone companies are required to submit audit reports automatically. However, certain entities, such as Free Zone Establishments (FZE) and Free Zone Companies (FZCO), may have mandatory audit requirements.
- Internal Preparation: Even if not obligatory, free zone companies are advised to prepare audit reports for potential future needs.
Mainland vs. Free Zone Companies
- Mainland Companies (Onshore):
- Located outside free zones.
- Licenses issued by the Department of Economic Development (DED) or other relevant authorities.
- Foreigners can establish businesses only with a local partner holding 51% ownership.
- Mandatory to conduct business activities within or outside the UAE.
- Free Zone Companies:
- Operate within designated free zones.
- Allow 100% foreign ownership.
- May not be legally required to present audit reports to authorities but must maintain proper accounting records.
Statutory Audit
A statutory audit involves examining a company’s financial situation and results as stated in its financial reports.
- Purpose and Scope:
- Objective: Ensure stakeholders have confidence in the financial statements’ credibility, consistency, and legal compliance.
- Annual Basis: Typically performed once a year, though frequency depends on local legislation and the organization’s nature.
- Entities Covered: Mandatory for certain entities prescribed by legal acts, commonly public interest entities and regulated companies.
- External Auditors:
- Independence: Conduct statutory audits to provide an unbiased opinion on the company’s financial health.
- Appointment: By regulatory authorities or shareholders.
Documents Required for Statutory Audit in the UAE
Auditors require specific documents, including:
- Basic Company Details: Organizational and legal profile, ownership structure.
- Financial Instruments Appraisal and Assessment: External review of accounting records to confirm accuracy.
Benefits of a Tax Audit for a Business
- Increased Authenticity of Financial Statements
- Management’s Attention
- Compliance Requirements
- Access to Loans and Credit
Conclusion
Conducting audits is essential for effective tax compliance, encompassing the scrutiny of financial reports, tax returns, and related documents to ensure adherence to corporate tax laws.
At Rosemont Partners, we specialize in guiding businesses through the complex regulatory landscape of the UAE. Understanding audit requirements is crucial for ensuring compliance, building stakeholder confidence, and maintaining a solid financial foundation. With our expertise in corporate structuring and business setup, we provide tailored solutions that align with local regulations, whether you operate in the mainland or a free zone. Trust Rosemont Partners to simplify compliance, enhance your financial credibility, and help your business thrive in the dynamic UAE market.
