Businesses should start internal preparation – including book-keeping and accounting – that will be crucial for external audit and tax filing from next year
- The UAE has more than 665,246 active businesses registered with various licensing authorities including 45 free economic zones;
- The total number of registered active business licences in July 2022 amounted to 665,246, a 1.9 percent increase compared to 652,885 licences issued in December 2019, according to the UAE’s National Economic Register (NER);
- About 80-85 percent of the 665,246 registered active businesses fall under the Micro, Small and Medium Enterprises (MSME) and remain below the mandatory VAT threshold of Dh375,000 annual net profit range;
- Most UAE businesses are not yet ready for the 9 percent Corporate Tax that will be levied on companies generating more than Dh375,000 net profit per year from June 2023.
Most UAE businesses are not yet ready for the 9 percent Corporate Tax that will be levied on companies generating more than Dh375,000 net profit per year from June 2023, which requires thorough accounting and auditing process.
The total number of registered active business licences in July 2022 amounted to 665,246, a 1.9 percent increase compared to 652,885 licences issued in December 2019, according to the UAE’s National Economic Register (NER).
The register’s data showed that over 81 percent of licensed businesses are located in Dubai, Abu Dhabi and Sharjah. Dubai accounts for some 46 percent of the country’s total licensed businesses, Abu Dhabi for 23 percent and Sharjah 14 percent. The largest percentage of issued licenses were for limited liability companies, accounting for 40 percent, followed by individual companies accounting for 33 percent.
The UAE Government in January this year said, it will introduce 9 percent corporate tax on businesses with net profits of more than Dh375,000 starting from June, 2023, about five-and-a-half years after the introduction of the 5 percent Value-Added Tax (VAT) in January 2018. This requires companies to make provision for proper accounting system and issue annual financial audit reports, based on which the Corporate Tax will be calculated and filed with the UAE Federal Tax Authority (FTA).
About 80-85 percent of the 665,246 registered active businesses fall under the Micro, Small and Medium Enterprises (MSME) and remain below the mandatory VAT threshold of Dh375,000 annual net profit range. Therefore, most of them do not maintain formal accounting practice, let alone publish audited financial reports every year, due to a prolonged non-tax regime in which they used to operate till now.
“All registered businesses, especially those coming under the purview of the Corporate Tax, will have to start formal accounting and auditing process from now on to establish their financial credentials for tax calculation and subsequently file tax returns,” Mr Sheetal Soni, Partner of MI CAPITAL Services, says.
“The transition to a tax regime from a non-tax environment is not an easy one and requires a drastic change in the corporate culture that needs proper documentation, accounting and auditing in addition to transparency and accountability built-in the system.”
Private businesses will need to strengthen accounting, auditing and tax compliance. They will either have to hire accounts and tax professionals or outsource these to accounting, auditing firms and tax advisors.
CA Prateek Tosniwal, Director at MI CAPITAL Services, says, “Once the new UAE Corporate Tax Law is issued, companies will scramble to start auditing process. However, the tax community might not be able to manage the rise in demand for Corporate Tax filing in short notice.
“So, private businesses should start the consultation process and strengthen the internal accounting and book-keeping process that are crucial for external audit and taxation.”
CA Karishma Suwarnakar, Head of Tax and Compliance at MI CAPITAL Services, says, “MI CAPITAL Services understands the challenges and the burden of additional Tax and Compliance for Startups, SMEs and MSMEs and strives to provide cost efficient one stop solution specially designed for Startups, SME and MSMEs in the region including complete Accounting, Tax return filing, and other compliance requirements under one package.”
About MI CAPITAL Services
MI CAPITAL Services comprises of a team of experts who work together to serve clients on a broad range of advisory services including: Corporate Finance; Audit and Accounting; Tax and Compliance; Risk and Assurance; Debt and Equity Advisory; Investment Advisory; Valuations and Due Diligence; Company Formations; Banking & PRO Services; Startup Advisory and Funding.
MI CAPITAL Services team has decades of combined experience and a track record of successfully delivering solutions in diversified market conditions. The company’s presence in the region and deep relationships with the eco-system allows it to provide clients with efficient business solutions across various industries and client segment.