Dubai: Individuals owning multiple sole-ownership companies must prioritise housekeeping and transition from traditional accounting practices in accordance with UAE’s new Corporate Tax framework.
And this involves establishing updated accounting policies, procedures, and financial statements, said Manali Chopra, Director of Accounting, Audit and Tax at AKW Consultants.
On Wednesday, Chopra stressed the above while speaking at the Gulf News’ event ‘UAE Corporate Tax: Optimising Efficiency and Minimising Risks’.
- UAE Ministry of Finance extends deadline for Corporate Tax Free Zone consultation
- UAE Corporate Tax: Free zone businesses await final details on 0% for processing, distribution
- Employee bonuses, commissions do not come under UAE corporate tax rules
- UAE Corporate Tax: Are business owners better off drawing a 'salary' from their companies?
She said: “After conducting extensive market impact assessments for several months, it’s evident that companies encounter numerous challenges while transitioning to the new Corporate Tax framework.”
Among these challenges, individuals owning multiple sole businesses need help synchronising their financial records.
“These individuals might have established these companies for various reasons, such as obtaining visas or splitting revenues for VAT-related considerations. Their current struggle lies in aligning and reconciling these accounts,” she stated.
Before the implementation of Corporate Tax, there were no obligations concerning maintaining proper bookkeeping or conducting company financial statement audits. “These have been instances where owners withdrew funds from their companies and merged them into their P&L accounts. These are areas where companies need to take immediate action. They must streamline their bookkeeping processes to ensure readiness for the Corporate Tax law,” said Chopra.
Better now than later
The Corporate Tax expert emphasised the importance of conducting a pre-emptive CT impact assessment because the focal point here is restructuring, a crucial demand of the current market landscape.
Although UAE’s Corporate Tax law came into effect on June 1 this year, a significant chunk of the market anticipates its practical implementation from January 1, 2024.
“Approximately 80 per cent of this market follows the January to December financial year cycle,” she explained. Moreover, this transitional period allows owners to evaluate the justification behind owning each company of their companies.
“We have had several sole proprietors question whether they are better off merging or closing the entities. But a one-size-fits-all answer in this case would be inappropriate,” she said. A comprehensive analysis should drive the restructuring. “Proprietors are better off asking themselves - why do they have multiple companies, what businesses do they have, what impact would be having these companies have on their profitability in future. And then could consider restructuring,” she explained. Lack of clarity on this front could pose challenges for business owners, and even tax consultants may be unable to help these individuals.
What businesses must focus on
In future, businesses must also justify the quantum of business expenditures. “Personal finances of directors and key management personnel, including non-business expenditures, should be incurred from separate personal bank accounts, and separate records should be maintained,” said Chopra.
Moreover, companies must use proper accounting software to track income, expenditures and financial transactions and generate real-time management reports. “Digitisation of records will make it easier for businesses to maintain records and quickly generate documents when required,” she added. Companies must also periodically review records, and conduct internal audits to identify errors and inconsistencies.