Invest UAE: Corporate tax drives financial accountability in SME sector

Businesses must refine their accounting and auditing procedures to streamline operations as well as comply with the changes brought by corporate tax laws, highlighted experts during a panel discussion titled Adapting to change: Corporate tax and auditing in the UAE.

“For businesses with revenues exceeding Dh50 million as well as for qualified free zone companies, auditing is mandatory under the new corporate tax regulations. Compliance includes maintaining accurate records of related party transactions and ensuring arm’s length principles,” said Naveen Sharma, Founder & Chairman, Taxation Society in the UAE. “Companies must ensure that registration of their business adheres to specified timelines as per the corporate tax law.”

Ensuring 100 per cent compliance is crucial in the UAE's straightforward tax regime. “This involves maintaining records including electronic documents, invoices, and agreements. Coordination between group companies must be carefully managed to meet compliance requirements,” explained Sharma.

With the implementation of corporate tax in the UAE, every business has now started working with the Federal Tax Authority (FTA), sharing a portion of their profits with the government. According to Jaison Mandapathil, Manager, Compliance & Assurance, Hussain Al Shemsi Chartered Accountants, it’s essential to have accurate financial data to comply with all tax rules.

“Auditing plays a major role here, ensuring transparency and fairness in reporting to the authorities. Compliance now encompasses tax, anti-money laundering measures, and corporate regulations, making it a comprehensive landscape for businesses to navigate.”

How businesses are managing taxation

Sharing an entrepreneurs perspective on the implementation of corporate tax, Muneer Al Wafaa, Founder and CEO, Al Wafaa Group, said, “The corporate tax law has instilled financial discipline among entrepreneurs and it’s a great opportunity for start-ups and SMEs to streamline their businesses.

The UAE government's initiative to implement corporate tax is a positive step, particularly for SMEs, panelists highlighted.

“As a business owner for the past 22 years in the UAE, aligning our accounting practices with global standards has been challenging. Corporate tax necessitates upgrading our technology to align our accounting systems, auditing processes, and internal controls to meet these standards. We have invested in technology because manual processes are more prone to errors. Implementing robust ERP and accounting software integrated with tax compliance features is essential,” says Al Wafaa, adding, “We are providing training to our finance team to ensure they understand and apply these new regulations effectively. We are also seeking guidance from chartered accountants and auditors to navigate tax requirements accurately.

Panelists emphasised the importance of maintaining thorough administrative records, managing finances, conducting audits, and meeting regulatory requirements to ensure long-term success.

“Initially, there may be turbulence as businesses adjust to these new requirements, leading to increased operational costs. Finding a balance between compliance costs and business outcomes is crucial. It's a learning phase for business owners to understand and adapt to these new standards effectively,” said Mandapathil.

While many companies are struggling to adapt to corporate tax laws, with expert guidance, they can easily navigate these challenges and align their businesses accordingly.

“Managing between meeting shareholder and CEO expectations of minimising tax liability while complying with intricate tax laws remains a significant challenge for companies. The tax legislation offers various reliefs, extending opportunities to eliminate the entity’s tax liabilities pertaining to pre-tax regime. For instance, businesses can leverage provisions to optimise on tax on gains pertaining to long-held assets like land for the pre-tax regime period, providing strategic advantages in tax planning,” explained Sheetal Soni, Partner, MICS International DMCC, adding, “Businesses must ensure their systems are ready to take advantage of optimisation opportunities and comply with tax regulations effectively.”