AUDIT TAX AND OTHER OPPORTUNITIES IN UAE
In this presentation, accounting, audit, tax and other advantages of doing business in the UAE are examined.
Business can be done in UAE under the following options
- within the various Free Zones in UAE
- non-free zone areas in UAE
- through Dubai offshore company
Details of the above structures have been outlined in “Setting up Business in the UAE”.
ACCOUNTS AND AUDIT
General provisions as to maintenance of commercial books of accounts are outlined in Commercial Transactions Law (Federal Law no 18 of 1993).
A trader shall maintain the commercial books necessitated by the nature and importance of his business in a manner which ensures that his financial standing, rights due to him and obligations incumbent upon him in relation to his business are shown accurately. In all cases the trader shall maintain a daybook and a general ledger. All financial transactions made by the trader shall be entered in the daybook on a daily basis. He may also maintain subsidiary ledgers.(Article 26 and 27)
A trader is required to maintain true copy of all correspondence, invoices and other documents in connection wit his commercial activity in an organised manner for a period of not less than 5 years from the date of issue or receipt (Article 30)
A trader can maintain computerised books of accounts which shall be deemed to be equivalent to commercial books. (Article 38)
Audit of entities in non-free zone area
For entities in the non-free zone area, governed by Commercial Companies Law (Federal law no 8 of 1984 and its amendments) audit is mandatory in case of the following entities
- limited liability company
- public joint stock company
- private joint stock company
- partnership with limited shares
- branch of foreign company
For the following entities in the non-free zone area, though governed by the Commercial Companies Law, audit is not mandatory
- general partnership
- limited partnership
Sole proprietorship is not governed by Commercial Companies Law, and hence audit is not mandatory.
Presently, the Commercial Companies Laws do not specify any accounting standards framework for the preparation of the financial statements. The Central Bank of UAE has made it mandatory for banks to prepare their accounts as per International Financial Reporting Standards (“IFRS”). Most listed companies prepare their accounts as per IFRS. In the absence of any specific standards framework in UAE, most of the practising firms apply IFRS in the preparation of audited financial statements, and apply International Standards of Auditing in the conduct of audit of financial statements.
Accounts have to be finalised within 3 months from the end of the financial year and laid before the general body for approval within 4 months from the end of the financial year
As per Commercial Companies Law, the audited financial statements are required to be filed with the Ministry of Economy and the competent licensing authority in the Emirate concerned..
Audit of entities in the Free Zone area
Regulations pertaining to audit are covered by the Free Zone Regulations. Audit is mandatory for entities established within the Free Zone regulations such as Free Zone Establishment (FZE) and Free Zone Company (FZC).
However, if an overseas company sets up a branch in the free zone (i.e. not as FZE or FZC), audit is presently not mandatory unless required by the laws at the place of incorporation of the overseas company.
In case of Jebel Ali Free Zone Authority, audited financial statements have to be filed with JAFZA within 3 months from the end of the financial year. Similar provisions are applicable for other free zones.
Audit of Dubai offshore company
In case of a Dubai offshore company, within 6 months after the end of the financial period, the accounts for that period shall be
(a) prepared and examined and reported upon by auditors; and
(b) laid before a general meeting together with a copy of the auditors' report.
Presently, there is no federal income tax in UAE.
There is no personal income tax on individuals in any of the Emirates.
There are no withholding taxes in UAE.
Individual Emirates have income tax decrees which apply to a body corporate but in practice this is not implemented except in case of foreign bank branches and oil producing companies which pay income tax under special agreement with the Ruler of the concerned Emirate where the business is carried on.
All businesses operating from the free zones are exempt from income tax for varying periods (such as 15 years/50 years) which period can be renewed by the free zone authority.
Despite lack of taxation, UAE has entered into double tax avoidance agreements with various countries apparently to enable foreigners operating in UAE to seek relief from double tax avoidance in their own countries. Treaties have been signed with the following countries-Algeria, Armenia, Austria, Belgium Belarus, Canada China, Czech Republic, Egypt, Finland, France, Germany, India, Indonesia, Italy, Jordan, Korea, Lebanon, Luxembourg, Malaysia, Mauritius, Mongolia, Morocco, Mozambique, Netherlands, New Zealand, Pakistan, Poland, , Romania, , Seychelles, Singapore, Spain, Sri Lanka, Sudan, Syria, Yemen, Tajikistan, Thailand Tunisia, Turkey, Turkmenistan and Ukraine.
Although the treaties have been signed with the above countries, it is not clear to what extent the treaty benefits are available to the residents of those countries.
To illustrate, in case of India, there have been conflicting judgments and advance rulings as to the availability of treaty benefits in India for UAE residents. In general, tax authorities in India are taking the stand that the treaty benefits are not available to UAE residents since there is no tax in UAE, and hence no double taxation of income for UAE residents.
There is presently no tax administration machinery excepting for recovery of income from foreign bank branches and oil producing companies.
However, Ministry of Finance and Industry is the competent authority which issues a tax residence certificate, if required, against payment of fees of AED 5000 by a corporate and AED 1000 by an individual.
The customs valuation is based on the CIF value. UAE has relatively low duty rates, usually five percent (5%), for most goods. Most items that are considered essential, such as staple foodstuffs and pharmaceuticals, are allowed duty free status but a bill of entry is required. However, imports of liquor/alcohol are subject to fifty percent (50%) and cigarettes one hundred percent (100%) on their CIF value. The CIF value that is stated on the commercial invoice is generally accepted, however UAE Customs are not bound to accept the figures listed and can reset the estimated value of the goods.
UAE is a member of the Gulf Cooperation Council (GCC) a plan which calls for the economic integration of the six Arabian member states (Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the UAE). Under the terms of this agreement, eligible products will be exempt from duties and other charges when traded among member states. In order to qualify for benefit status, the value added in the goods cannot be less than 40 percent of the final value and must be produced in a factory that is at least 51% percent local ownership that is duly licensed by members respective Ministry of Finance and Industry.
Duty exemptions are available for Government (such as Police and Ministry of Defence), Semi-Government organizations and industrial license holders (such as raw materials). The organizations must provide a duty exemption letter and other necessary documentation as per customs regulations.
Apart from customs duty, in Dubai 5% of the rental amount is payable by tenants of individual residence and business premises.
In case of hotels and serviced apartments, 10% service tax is levied on amount billed.
Most of the government services such as visas, work permits and others are subject to service fees.
OPPORTUNITES AND ADVANTAGES
UAE in general, and Dubai in particular, present international businesses with a wide range of opportunities for doing business including
- Transport and distribution
- Manufacturing and processing
- Regional offices
- Conformances, exhibitions and seminars
- Real estate and construction
Dubai offers businesses all the advantages of a highly developed economy. Its infrastructure and services match the highest international standards, facilitating efficiency and quality. Benefits include
- free enterprise system
- well connected airlines and shipping services
- well developed surface road transport facilities
- state of the art telecommunication
- sophisticated financial services sector
- top international exhibition and conference venue
- high quality office and residential accommodation
- fist class hotels, hospitals and shopping malls etc
- cosmopolitan life style
Foreigners setting up business in UAE have various cost advantages such as:
- No corporate taxes
- No income taxes
- No foreign exchange controls
- No trade barriers
- low import duties
- Competitive labour cost
- Competitive energy cost
- Competitive real estate cost
There are several Free Zones in Dubai and other Emirates, and benefits of setting up in the Free Zones include:
- 100% foreign ownership
- guarantee of no taxation
- no customs duties for import into free zone
- flexible investment options
- efficient logistics facilities for transport and distribution
- single window administrative and recruitment support