The Requirements of Preparing Audited Financial Statements for UAE Corporate Income Tax

For Corporate Tax purposes, the UAE Federal Tax Authority (FTA) may require natural persons or businesses subject to corporate tax to submit financial statements used to determine taxable income for a tax period in the manner and form prescribed by the FTA. In this regard, the Ministry of Finance (MOF) has recently announced the categories of Taxable Persons that are required to prepare and maintain audited or certified financial statements.

Categories Required to Prepare and Maintain Audited Financial Statements for Corporate Income Tax.

According to the Ministerial Decision No. 82 of 2023 the following categories of Taxable Persons should prepare and maintain audited financial statements:

1. A Taxable Persons (natural person, or business) that derives revenue exceeding AED 50,000,000 during the relevant tax period (normally a financial year).
2. A qualifying free zone persons which are free zone licensed freelancers and businesses that qualify for 0% corporate tax.

Businesses with revenue below AED 50 million

Businesses with revenue below AED 50 million are advised to maintain accurate accounting records and prepare audited financial statements due to several reasons, such as complying with regulations set by licensing departments and free zones, undergoing VAT audit or compliance checks, and satisfying the demands of external users like banks and investors.

Why are financial statements needed for Corporate Income Tax purposes?

The FTA requires financial statements to verify the calculation of accounting income and, consequently, taxable income, for accurate corporate income tax calculations.

Accounting income refers to the accounting net profit or loss for the relevant tax period, as per the financial statements prepared according to accounting standard acceptable in the UAE. The taxable income for a tax period will be the accounting income for that period, adjusted for applicable deductions and exemptions.

The Corporate Tax regime in the UAE aims to reduce the compliance burden and mitigate risks for freelancers and small businesses by mandating certain categories of Taxable Persons to prepare and maintain audited financial statements.

Summary

• The FTA may request ALL natural persons and businesses subject to corporate tax to submit financial statements for tax purposes.
• Certain categories of Taxable Persons are required to, and must, prepare and maintain audited financial statements.

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