In the UAE, auditing companies must ensure that the company complies with tax payments. The government of UAE has introduced several laws stating the process of doing tax audits for businesses.
According to this law, auditing the financial records of several companies in the UAE is necessary. The audit helps verify the company’s transactions and reports and examines the company’s fulfillment of tax payments.
During an audit in UAE, the company needs to show the transactions and whether these financial invoices are properly presented according to accounting fundamentals. Let us look at the audit requirements in UAE.
Auditing Requirement for Companies in UAE
The UAE administration introduced federal law for corporate businesses, which guidelines the audit tax linked with the country’s business income tax. There are several companies required to prepare financial audited records, such as,
- A company with more than AED 50 million in annual revenue is liable to tax.
- Free Zone Companies
The audit requirement in Dubai depends on the type of entity.
Auditing for Mainland Company
According to federal law, mainland companies in the UAE must conduct financial audits for corporate companies, ensuring that firms operate transparently.
With the help of audits, it is verified that the company’s financial records are accurate, contributing to honest and fair business. The fundamentals of the audit are;
Obligatory Audit
Mainland Companies in the UAE are obligated by the law to go through the audit process, which involves investigating financial records, business operations, and compliance with accounting.
With the help of an audit, it is made sure that the company’s financial invoices are reliable and the business operations are fair.
Keeping Financial Records
Along with the obligatory audit, mainland companies must keep the financial records for five years. This requirement is necessary as it will help resolve any error during auditing. It will also help if there is a need to check the company’s previous records.
Auditing for Free Zone Company
The auditing requirement for free zone companies differs from that of mainland companies in the UAE. Free zone companies in the UAE have different rules and regulations for business activities.
Audit Requirements
Mainland companies face regular audits, while a free zone company is not required to go through an audit or submit annual audit statements. However, certain free zone companies, such as free zone establishments and free zone companies, must go through auditing.
Keeping Audit Reports
Although free zone companies are not required to conduct audits, they must keep audit reports for future needs.
Difference between Mainland & Freezone
Mainland Company
A mainland company enjoys the following advantages.
- Any outsider can open a company in the UAE mainland with a local UAE partner who owns the company’s 51 % shares.
- The UAE Department of Economic Development issues a mainland license to companies.
- The mainland company can run their business anywhere in the UAE
Free Zone Company
The benefits of a free zone company are,
- You can have 100% foreign ownership of the company
- You don’t have to submit an audit report to the local jurisdiction. There is only a requirement to keep accounting reports.
- There are different free zones for various business sectors in the UAE.
Financial or Statutory Audit
A financial or statutory audit is an external audit examining a company’s financial condition through its financial records.
Purpose of Statutory Audit
Now, we will discuss the objective of performing a statutory audit in a company.
Main Objective
The primary goal of a statutory audit in the UAE is to ensure the partners are assured of the company’s financial records and that they are reliable and working by the law.
Included Companies
The authorities obligate statutory audits on public companies and companies subject to the law.
Annual Audit
This type of audit in UAE is done once a year, but it can be different for different kinds of companies.
Required Documents for Statutory Audit in the UAE
The company must submit the following documents to perform a statutory audit in the UAE.
- Details of your company
- List of fixed assets of the company
- Financial records or bank statements of the company
- Cash flow of the company
- Details of inventory
- All of the business contracts of your company
- Tax documents and other records of dues
- Loans and credits of the company
- Record of company’s transactions
- Bills to pay and accounts receivables
- List of all company’s purchases
- Business operating costs
Other than the documents mentioned above, you may need to submit additional documents required by the authorities.
Internal & External Audit in Dubai
There are two main types of audits which are internal audits and external audits.
Internal Audits: Internal audits in the UAE mainly focus on the company’s internal record and the management of future risks that may occur. Internal auditors identify operational errors and weaknesses of a company and how to improve them.
External Audits: The purpose of an external audit is to review the finances of a company, and it is done by an external party unrelated to the company.
Duration of Audit in Dubai
The legally specified period for audit is up to 5 years. The Federal Tax Authority can extend these periods for non-payment or fraud.
Tax Analysis Audit Report
The FTA issues an audit report to the person liable for the tax with all the facts and suggestions or the amount the taxpayer has to pay. In this report, the FTA generates the taxpayer’s tax amount, and in case of disagreement with the amount, the taxpayer can submit an appeal to the FTA within one month.
Venue of Audit
The audit in UAE can be done at the FTA or the taxpayer’s office. During the audit process, taxpayers provide the FTA with the required information and documents within the given time. They must cooperate with the FTA during the audit for proper analysis.
Complaints and Appeals
The taxpayer can file an appeal if they do not agree with the audit analysis. The Federal Tax Authority will examine the appeal and decide within 30 days.
Effect of Non-adherence with the Law
If a company or individual does not stick to the laws in the UAE, they will face fines by the Federal Tax Authority. In case of late payments, giving false information, not keeping the company’s financial records, not paying taxes, or hindering the audit process, the company will have to deal with penalties.
In case of a penalty, the company can appeal to the FTA within 20 days by providing the necessary documents. The FTA will review the appeal and inform the company in the next 20 days.
Benefits of Business Tax Audit in Dubai
There are many benefits of doing audit tax for a company, such as;
- Increasing the credibility of the company’s finances
- Improving the confidence of shareholders
- Helping with business decision
- Compliance with the regulations
- Accessing loans for business
Advice to Remember During Audit
The company should keep certain things in mind during the internal auditing, which are given below.
- According to the analysis of audit risk and internal audit, the auditor will select the audit’s sort, time and extent.
- After completing the audit, the auditors make a report about the procedure. The auditor mentions the company’s financial statements and facts in this procedure.
- After six months of auditing, the auditors will do an additional audit to check if the company has taken the necessary measures.
- The role of audit companies in the UAE is to check the honesty of the financial records.
- Reliability is very important as it will help with the growth of the business.
- The company should take the necessary steps to correct the mistakes in the financial records found by the auditors.
- With the help of external audits, a company can avoid any fraud that may happen and save the reputation of the company.
- Another important point is that external audits in the UAE help businesses have clear and fair records of their finances, which allows smooth business activities.
Summary
All in all, having a clear understanding of audit requirements in UAE is important for a company. With the help of an audit, a fair and detailed report of the company’s finances is made, ensuring the company complies with tax laws. Auditing in Dubai also helps a company make wise decisions about the future and avoid financial risks.
It is best to seek help from an expert audit company in the UAE, such as Al-Riyady, to understand audit requirements better. Our team can advise you on auditing, Accounting, Tax Consultation, etc.
