9 Questions All Founders Ask About UAE Accounting & Finance
Every week, I get countless messages from people planning to or already having businesses/startups in the UAE.
Very often it’s about how to start, grow, find investors. But also about accounting and finance, especially since there’s the “new” corporate tax and different regulations all of us, founders, have to know and comply with.
I never was confident in responding to these questions in details, but since I know some amazing people and believe this can help many of you, I asked the Finanshels team to respond on the 9 most common questions I’m getting:
**Read till the end for a special offer for my newsletter readers.**
1. How do I pay myself a salary as a founder and shareholder in my company?
“As per UAE regulations, you can withdraw a salary that aligns with market standards based on your role, experience, and qualifications.
The salary amount should be consistent each month, and you should issue a payslip for yourself. Properly document the payment, including bank transfers and payslips.”
2. What is corporate tax, who must register, and how?
“Corporate Tax: Also known as corporation tax or company tax, it is a direct tax levied on the profit of companies.
Who Must Register:
All UAE entities must register, except for some exemptions for sole establishments and professional licenses with annual turnover up to AED 1 million.
How to Register:
Register with the UAE Federal Tax Authority (FTA) via the FTA e-services portal.
Provide required documents, including the trade license and financial statements.”
3. What is VAT, who must register, and how?
“Value Added Tax (VAT): A consumption tax levied on the value added at each stage of a product's production and distribution.
Who Must Register:
Companies with taxable supplies or expenses exceeding AED 187,500 in a 12-month period can voluntarily register for VAT.
Registration becomes mandatory within 30 days if taxable supplies exceed AED 375,000 to avoid penalties.”
How to Register:
Register online through the FTA e-services portal.
Submit necessary documentation, such as trade license, financial records, and details of business activities.”
4. What are the common mistakes local companies make in terms of accounting and tax compliance?
“Inaccurate Categorization: Misclassification of income, expenses, assets, liabilities, and equity.
Inaccurate Bank Reconciliation: Failure to properly reconcile bank statements, including mixing personal and business expenses.
Poor Cash Flow Management: Not monitoring cash flow regularly and failing to prepare cash flow statements.
Failure to Register for VAT & Corporate Tax: Missing the threshold for VAT and corporate tax registration, leading to late registration penalties.
Failure to File VAT and Payment on Time: Missing VAT filing deadlines and late payments, resulting in penalties.
Incorrect Invoice Format: Not following the standard invoice format required for VAT-registered companies.
Incorrect Tax Booking: Misapplying VAT rates, not using the correct rate for exports, and improper booking of purchases and reverse charge mechanisms.”
5. When should I file my first corporate tax report?
“For a Company Incorporated:
Before 2023: File the first corporate tax return for the financial year starting on or after June 1, 2023.
In 2023: File the first corporate tax return for the financial year starting after incorporation.
In 2024: File the first corporate tax return for the financial year starting after incorporation.
The first filing deadline is generally nine months after the end of the financial year.”
6. Can I file my own corporate tax and VAT reports, or do I have to use a licensed accounting service?
“While you can file your own corporate tax and VAT reports, it is advisable to use a licensed accounting service or tax expert due to the complexity and detailed calculations required.”
7. What are the UAE legal requirements I have to take care of every month, quarter, and year to be accounting and tax compliant?
“Monthly:
Reconcile bank statements.
Maintain accurate records of all transactions.
Quarterly:
File VAT returns.
Review and update financial statements.
Annually:
Prepare and audit financial statements.
File corporate tax returns.
Conduct an annual general meeting (AGM) and update corporate records.
Check with trade licensing authorities for any additional requirements such as audited financial statements, Economic Substance Regulations (ESR), and Anti-Money Laundering (AML) compliance.”
8. What are some of the common penalties I can face for non-compliance?
“Late Corporate Tax Registration Penalty: AED 1,000 for missing the registration deadline.
Late VAT Filing Penalty: AED 1,000 for missing the quarterly VAT filing deadline.
Late VAT Payment Penalty:
2% of the unpaid tax is due immediately once the payment is late.
4% of the unpaid tax is due on the seventh day following the deadline for payment.
1% daily penalty for any amount still unpaid one calendar month after the deadline, up to a maximum of 300%.
Additional penalties may apply for late submission of audited financial statements, ESR, and AML compliance, varying by trade licensing authority and business activity.”
9. Are there any new accounting regulations coming in 2024 I should be aware of as a business owner?
“The major regulation to be aware of is the implementation of corporate tax. To comply, it is advisable to maintain proper books of accounts. If any authority issues a notice, the primary requirement will be audited financial statements. Keeping your books updated will facilitate timely auditing and compliance, avoiding last-minute rushes and ensuring deadlines are met.”
Thank you, Finanshels and Suhail for sharing your tips & keeping our finances is order.
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Kristina
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Nice post.
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