What is FATCA in the United Arab Emirates (FATCA UAE)?

FATCA in the UAE

The UAE has multiple agreements with foreign countries that ensure compliance with the tax laws in the countries involved. An example of this is the FATCA in the UAE. All US investors residing in the country must comply with certain regulations in order to legally operate in the country.

In this article, you will find information about FATCA in the UAE, the aspects of this law, the individuals affected by it, the assets that must be reported, and how we can help you get to know more about this law appliance around the world.

  1. What is FATCA?
  2. Aspects of the FATCA 
  3. What must be reported under the FATCA?
  4. Types of taxpayers reporting to FATCA
  5. Who is affected by FATCA?
  6. FATCA in the UAE
  7. How to fill out the FATCA form in the UAE?
  8. How can we help you get to know more about FATCA in the UAE?

1. What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a law that requires U.S citizens living abroad or at home to file annual reports on any foreign account holdings they have.

The FATCA declaration started in 2010 as part of the Hiring Incentives to Restore Employment (HIRE). Its goal was to promote transparency in the global financial services sectors.

1.1 Some keynotes about this law

  • FATCA requires US citizens to file annual reports on any foreign account holding and pay any taxes owed on them.
  • The US residents who do not report their foreign accounts holding over $50,000 in a single year are subject to penalties.
  • The tax revenues brought in by the FATCA pay for the business incentives introduced in the HIRE Act.

2. Aspects of FATCA

The FATCA act was signed by former US President Barack Obama as part of the Hiring Incentives to Restore Employment (HIRE).  This law was designed to incentivize companies to hire unemployed workers. This was a response to the high rate of unemployment during the 2008 financial crisis.

One of the principal incentives offered to businesses through the HIRE act was an increase in the business tax credit for any new employee that worked for at least 52 weeks. Other incentives include benefits, a payroll tax holiday, and an increase in the expense deduction limit for new equipment purchased in 2010.

2.1 FATCA: Focus on tax evasion

This law looks to eliminate tax evasion by American businesses and individuals that are earning taxable income abroad. While it is not illegal to keep an offshore account, failure to disclose it to the Internal Revenue Service (IRS) is illegal since the country taxes all assets and income of its citizens on a global scale.

The FATCA declaration was in part created to fund the costs of the business incentives offered in HIRE. FATCA provisions that every US taxpayer report all financial assets held outside the country annually and pay any taxes due on them. The revenues produced by this act cover the costs of the hiring incentives offered in the HIRE act.

The US residents that do not report their financial assets and their foreign account holdings are likely to receive sanctions.

3. What must be reported under the FATCA?

As said before, every American taxpayer with financial assets totaling $50,000 or more must fill out a FATCA form. Those assets can be in stocks, bonds, bank accounts, and other financial instruments. However, there are certain exceptions. One major one is the assets from a foreign branch of a U.S institution.

3.1 Foreign institution compliance

Non-financial foreign entities (NFFE) and Foreign financial institutions (FFI) must comply with this law by disclosing the identities of US citizens with accounts. And the value of the assets in those accounts to the FATCA Intergovernmental Agreement (IGA) or the IRS.

The FFI that does not comply with the Internal Revenue Service will be excluded from the market of the United States and have a 30% of any withholdable payment withheld from them as a tax sanction. These payments can include income generated from the U.S financial assets held by these banks such as periodic profits, dividends, and interests.

NFFEs and FFFIs that agree to the law must report annually the address, name, and tax identification number (TIN) of each account holder that meets the requirements of a U.S citizen. As well as the account balance, account number, and any withdrawals and deposits on the account for the year.

3.2 Reporting thresholds for individual taxpayers

The reporting thresholds for foreign assets can vary whether you live abroad or you file a joint income tax return. According to the IRS:

  • If you file separately from your spouse or you are single, you must submit a form if you have more than $200,000 foreign assets at the end of the year if you live abroad. Or more than 50,000 if you live in the U.S
  • If you file tax with your partner, the threshold doubles. 

4. Types of taxpayers reporting to FATCA

4.1 For taxpayers living abroad

The IRS requires the taxpayers living abroad to fill out a form under the following circumstances:

  • You are in a marriage filing a joint income tax return and the total value of your foreign financial assets is more than $400,000 on the last day of the tax year. Or more than $600,000 at any moment during that single year.
  • You are not a married person filing a joint income tax return and the total value of your foreign financial assets is more than $200,000 on the last day of the year or more than $300,000 at any moment during that single year.

4.2 For taxpayers living in the U.S

The IRS requires the taxpayers living in the United States to fill out a form under the following circumstances:

  • You are unmarried and the total value of your foreign assets is more than $50,000 on the last day of the tax year or more than $75,000 during the whole year.
  • You are married filing a joint income tax return and the total value of your financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any moment during that single year.
  • A similar situation happens when you are in a marriage but filing separate income tax returns. And the total value of your foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

4.3 Penalties for non-compliance

There are penalties for failing to file the FATCA form. The IRS can impose a $10,000 penalty for failing to file taxes. And an additional penalty of up to $50,000 if the citizen continues to not file after the notification by the IRS. And a 40% penalty for understanding taxes attributable to non-disclosed assets.

4.4 The cost of compliance

Although the non-complying costs with FATCA are high, the compliance costs for foreign financial institutions are also high. Some studies stated that 250,000 foreign financial institutions were being impacted by FATCA’s reporting requirements.

5. Who is affected by FATCA?

The FATCA declaration has an important impact on all businesses that are owned by U.S citizens. This includes Dual Nationals and U.S passport holders who live abroad. Also, Green Cards holders, people that spend a certain amount of days per year in the U.S, and U.S partnerships and corporations.

The FATCA legislation affects all of the above. It also affects every bank in the world. In fact, your bank will need to share your account information on an annual basis with the IRS. The IRS will mainly look at the highest amount of money that was on your account during that year.

6. FATCA in the UAE

In the UAE, generally, depository institutions like banks, custodial institutions like mutual funds, private equity funds, investment entities like hedge funds, and certain types of insurance companies must comply with the FATCA.

To implement the Foreign Account Tax Compliance Act effectively, the US has signed Intergovernmental Agreements (IGA) with the United Arab Emirates (US-UAE IGA) in 2015 and 112 other jurisdictions.

Under the UAE law, all Emirates and entities should comply with the US-UAE IGA, and the entities can be classified into the following:

  • Financial institutions (FIs) (can further be categorized into Reporting FIs and Non-reporting FIs.
  • Non-financial foreign entities (NFFE)

Authorities like ADGM, DIFC, and the Central Bank of UAE are responsible for regulating the Reporting FIs. Such FIs get the support of their respective regulatory authority to comply with FATCA. Other FIs that do not get the support of any specific regulatory authority are called unregulated FIs and obtain the support of the Ministry of Finance (MoF) in FATCA in the UAE compliance.

The US-UAE IGA deals with exempt and deemed compliant FIs, and it has been categorized into four classes:

6.1 Exempt beneficial owners: Other than funds

The international organization, government entity, and the central bank are the exempt beneficial owners from FATCA. The government entities include the government of the UAE, any political subdivision of the government, etc. And all of these are exempt from FATCA in the UAE compliance.

These entities must be wholly controlled by one or more UAE government authorities. Such entity’s earnings fall into its account or in the account of any government authority. And at the time of dissolution, all the assets will vest in any government entity.

6.2 Exempt beneficial owners: Funds

Entities like pension funds of beneficial owners, broad and narrow participation retirement funds, and investment funds owned by the exempt beneficial owners, fall under this category and are exempt from FATCA in the UAE compliance.

Narrow participation retirement funds are very different from the broad participation retirement funds. The main difference is that the first one has less than 50 participants, and non-resident partners cannot use more than 20% of the fund’s assets.

6.3 Deemed compliant: Limited or small scope FIs

This deemed compliant category comprises local banks, financial institutions with a local client base, qualified credit card issuers, and financial institutions with only low-value accounts. The value of the accounts of these FIs is very low and they have a local presence. Each FIs under this section has specific conditions to comply with if they want to fall in this category.

6.4 Deemed compliant: Investment entities

This category includes foreign corporations, sponsored investment entities, investment advisors, investment vehicles, collective investment vehicles, and investment management. Each entity under this section must comply with a lot of conditions before they classify in this category.

Non-reporting FIs, generally, do not need to report information to the UAE. However, they must provide self-certifications to withholding agents to avoid withholding US source payments to them. Then, once considered exempt or deemed compliant, there would not be too much work, which means less burden on the team and will reduce costs.

Certain saving accounts, like accounts held by an estate, escrow accounts, life insurance contracts having certain terms, and partner jurisdictions accounts are excluded from the definition of financial accounts and therefore the reportable FIs do not report them.

7. How to fill out the FATCA form in the UAE?

The process to fill out the FATCA form in the UAE is the following:

  • Login to your NPS account
  • Click on “FATCA Self-Certification”
  • Submit the required details under the “FATCA/CRS Declaration Form”.
  • Click on submit
  • Read and tick “Declaration and authorization by all customers”
  • Click on confirm
  • Enter OTP received on your registered mobile number
  • Lastly, after authentication through OTP, Acknowledgment for the completion of FATCA Self-Certification will appear.

8. How can we help you get to know more about FATCA in the UAE?

On Connect Zone, we count on a team of legal advisors and tax specialists ready to assist you through every administrative and legal process you need. Our professionals can offer you guidance and can carry out every procedure related to this act so you can concentrate on other aspects of your business. You and your company can benefit from many FATCA in the UAE related services, for example, our VAT and tax consultancy.

In addition, we offer multiple solutions for those looking to settle or relocate their companies into the UAE. Therefore, we guide you through the application process for a freelance visa, or if you wish yo set up a free zone business, we can help you too.

Are you ready to have us as your business partner? Find out all the details you need to know about our services by contacting us. Do it now! +971 43 316 688. Also, write us an email with all of your concerns: contact@connectzone.ae. 

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Know about tax residency certificate in the UAE by Connect Zone

tax residency certificate in the UAE

The United Arab Emirates has transformed itself from a country once completely reliant on oil revenue, to one with a diverse economy attracting investment from all around the world. Certain emirates like Dubai or Abu Dhabi have become financial centers that attract hundreds of entrepreneurs thanks to their multiple incentives. One of these incentives is the favorable tax environment. For this reason, we will now learn in-depth how to obtain a tax residency certificate in the UAE.

In this article, you will find information about the taxation system in the UAE, the process to obtain a tax residency certificate in the UAE, and how we can help you with this process.

  1. Taxation in the United Arab Emirates
  2. What kind of taxes exist in the UAE?
  3. Tax residency certificate in the UAE
  4. Requirements to obtain the tax residency certificate
  5. Process of obtaining the tax residency certificate in the UAE
  6. How long does it take to obtain the tax residency certificate in the UAE?
  7. Benefits of obtaining the tax residency certificate
  8. How can Connect Zone help you get a tax residency certificate in the UAE?

1. Taxation in the United Arab Emirates

In a globalized world, companies no longer have to be restricted to a single geographical territory, instead, they are spread across the globe. As total income is generated by different countries, each country wishes to tax the profits earned and the global tax income of its residents on its land.

In order to curb double taxation and ensure that entrepreneurs do not pay tax for the same income twice, countries like the UAE have entered into the Double Tax Avoidance Agreement (DTTA). Then, once the DTTA is signed between the two countries, it mandates tax authority to produce a tax residence certificate, which helps individual residents and investors claim the treaty benefits.

1.1 Double Tax Avoidance Agreement

UAE’s double taxation treaty (DTT) or DTAA is a bilateral agreement that upholds and preserves the interest of companies and foreign investors coming from other taxable jurisdictions and investing in the UAE. Any national or foreign company already paying taxes abroad for the profits earned in its business can mitigate any potential tax burden as a result of this treaty. Investments in the United Arab Emirates are 100% tax-free and the government does not impose any taxes through DTT on the business owners planning to establish their business.

Not only the companies, but the individuals who are fiscal residents in the United Arab Emirates for more than 180 days and can deliver the documents required by the Federal Tax Authority (FAT) are eligible to use the advantages of the treaty.

The United Arab Emirates has signed the Double Taxation Treaty (DTT) or Double Taxation Avoidance with the following countries:

  • Andorra
  • Armenia
  • Austria
  • Bulgaria
  • Belarus
  • Belgium
  • China
  • Croatian
  • Egypt
  • Fiji
  • France
  • Germany
  • Japanese
  • Italy
  • Russia
  • Mexico
  • Spain
  • Turkey
  • United Kingdom
  • Venezuela, etc.

2. What kind of taxes exist in the UAE?

One of the characteristics of the United Arab Emirates is the almost non-existent tax policy. However, there is a latent tax system:

2.1 Corporate taxation

This type of tax is only payable in certain industries in the United Arab Emirates. The tax rate is the following:

  • The progressive rate of up to 55% for oil and gas companies
  • Rate up to 20% for foreign bank branches
  • No tax rate for all other companies and industries

In order to fully enjoy the tax exemptions and be able to declare to foreign tax authorities that your company is a Dubai company, you must obtain a tax residence certificate.

Although the Emirati laws do not stipulate articles regarding the tax residency of companies, the Ministry of Finances provides a tax residency certificate in the UAE for a company under certain circumstances. Generally, they require the company to be incorporated under Emirati law, have resident directors, and be domiciled in the UAE.

These rules imply that companies must follow the following substance tests:

  • The entrepreneurs must manage their  companies in the UAE (board meetings in the country)
  • Companies must demonstrate that core revenue-generating activities have been carried out in the nation.
  • The company must have an adequate number of qualified employees in the country, have an office (or co-working space), and incur expenses in the nation.

2.2 Taxation of individuals

In the United Arab Emirates, there is no personal income tax, therefore there is no law that governs it. Hence, an individual residing in the UAE will not have to pay taxes on his personal income.

As there is no law, there is no concept of tax residence, so until recently the UAE Ministry of Finance did not issue a tax residency certificate for an individual.  This meant that anyone moving there could not provide their tax residence since the only certificate available was the certificate of nationality.

Fortunately, the Ministry of Finance now provides a tax residency certificate for an individual who can prove that he resided in the country for more than 183 days during a tax year.

2.3 Other taxes: Real estate and VAT

The UAE does levy real estate taxes in the form of a 5% municipal tax on the annual rental value of the residential property. In addition to this, there is an incipient value-added tax or indirect tax since 2018 of 5% on some consumable goods.

2.4 More tax advantages

Certain emirates, like Dubai, do not have gif tax, inheritance tax, and no wealth tax. The country has signed 88 treaties to avoid double taxation and has signed the multilateral instrument, making some Emirates a great financial center from which to coordinate your company.

For this reason and given this attractive tax framework, many professionals, digital nomads, athletes, etc, have decided to relocate to the UAE.

3. Tax residency certificate in the UAE

A tax residency certificate is an official document delivered by the Federal Tax Authority (FTA) to a company operating in the country to establish tax residency and allow it to benefit from the double taxation avoidance agreements.

The Dubai tax residency certificate aims for any business operating in a free zone or in the Mainland that has been in the country for at least a year. Offshore companies cannot apply for this certificate and must receive a tax exemption instead of the tax residence certificate.

As well as companies, this Dubai tax residency certificate is also available for individuals who have resided in the country for at least 180 days and who wish to establish tax residence in the country. This is beneficial for individuals whose native countries do not have a double taxation agreement with the UAE. Keep in mind that an individual must have a valid United Arab Emirates resident visa for more than 180 days to apply.

4. Requirements to obtain the tax residency certificate

The documents needed to apply for this Dubai tax residency certificate vary if you are a company or an individual. The steps for both cases are the following:

4.1 Requirements for an individual to obtain the tax residency certificate in the UAE

Some documents are the following:

  • 6 months of personal bank statements, certified by the bank.
  • Emirates ID copy
  • Proof of income in the United Arab Emirates – e.g share certificate, salary certificate, employment agreement.
  • Passport copy and valid visa copy.
  • A copy of the certified tenancy contract or title deed, valid for at least three months prior to application.
  • A report from the General Directorate of Residency and Foreign Affairs (GDRFA) showing all exits and entries from the UAE.

Note that the tax residency certificate in the UAE cost is around AED 2000, payable to the FTA. This fee must be paid through the UAE e-Dirham card.

4.2 Requirements for a company to obtain a tax residency certificate in the UAE

  • Memorandum of Association’s copy
  • The organizational chart structure of the company
  • Passport, valid UAE resident visa copy, and Emirates ID of the company directors, managers, or shareholders.
  • A copy of the certificate of incumbency for the company – normally the Chamber of Commerce certificate.
  • Certified  commercial tenancy contract copy or title deed, valid for at least three months prior to application, physical office space is mandatory (virtual office space will not be sufficient)
  • Valid UAE trade license (Mainland DED or free zone) the company must have been active for over 1 year.
  • Latest certified audited financial statements or UAE company bank statements from the last 6 months, stamped by the bank.

The tax residency certificate in the UAE cost around AED 10,000 payable to the FTA, paid through the e-Dirham Card.

5. Process of obtaining the tax residency certificate in the UAE

The certificate of residence in the UAE was created to take advantage of the double taxation avoidance agreements signed between the UAE and the foreign jurisdictions. Note that the FTA issues Commercial Activities Certificates to enable individuals to refund the VAT paid in advance outside the country, whether or not DTAAs are applicable.

To obtain the tax residency certificate in the UAE login you must complete the following:

  • Create an account on the payable FTA portal
  • Complete the application form
  • Attach the required documents in JPEG or PDF format
  • Your attached documents and applications will be verified and if they meet the criteria, you will receive email confirmation and be asked to pay the remaining fees via the system.
  • After payment confirmation, you will receive the certificate of residence in the UAE via express courier.

5.1 What happens if the tax residence certificate is lost or damaged?

For damaged, lost or an extra copy of origin you have to pay AED 100 for issuing a replacement plus AED 3, paid through the e-Dirham Card.

5.2 Eligibility for tax residence certificate

To be eligible to obtain a tax residency certificate in Dubai sample, you must be the following:

  • Freezone company
  • An individual employee
  • Companies operating in UAE Mainland
  • An individual business/investor owner

Not eligible:

  • Offshore company
  • Branch of a foreign company
  • A non-employed individual (with a spouse visa)

6. How long does it take to obtain the tax residency certificate in the UAE?

If all the necessary documents are correct, the pre-approval process with the FTA generally takes 4-5 business days. Following pre-approval and confirmation that all documents are correct, the FTA then takes up to a further 5 working days to issue the tax residence certificate.

The tax domicile certificate or tax residence certificate is valid for 1 year, and can then be renewed each year, subject to resubmission and renewal process.

7. Benefits of obtaining the tax residency certificate

Entrepreneurs in the United Arab Emirates enjoy access to international markets when they decide to establish their company in one of the country’s Emirates. The added benefit of being a tax resident in the nation and obtaining the UAE tax residence certificate is to receive tax incentives and avoid double taxation by being a resident. Companies and individuals can obtain a separate UAE tax residence certificate which allows income to be covered both at the corporate and individual levels.

An overall view of your business structure and individual circumstances should support your effective tax planning. Therefore, we recommend you always seek professional tax advice, along with finance and accounting support to ensure that your individual situation and corporate structure are in line with tax rules to obtain the maximum benefit from UAE tax residence.

8. How can Connect Zone help you get a tax residency certificate in the UAE?

Whether you are an individual resident or the owner of a company, maintaining a legal and administrative order and being up to date with the tax laws of the country will allow you to reside in the UAE without problems. The government of this country is very strict regarding the following of the tax regulations and the residency status. This is why hiring a team of professionals, such as Connect Zone, to support you during these stages is more than necessary.

Connect Zone’s professionals are highly trained to complete the entire tax residency certificate in the UAE format on your behalf. Our agency has more than 20 years helping entrepreneurs in the United Arab Emirates achieve their goals. Some of our services include a wide range of PRO services, and full guidance during your freelance visa application.

Do you want to meet your goals with a team of professionals willing to assist you at every step? Feel free to share all of your concers with us. Contact us now by calling at +971 43 316 688. On the other hand, write us an email at contact@connectzone.ae.

Is your job search taking too long? Try looking for jobs on thetalentpoint.com. By uploading your CV, you will be able to connect with several enterprises looking for talents like yours. In addition, you can send your resume to contact@thetalentpoint.com.

Procedure for computing taxable profits in the UAE

taxable profits in the UAE

Starting a company in the United Arab Emirates is an easy process with the right guidance. However, to ensure the successful establishment of your business in the country, it is essential to meet the following conditions: Strict compliance with the laws and regulations of the UAE, an appropriate organization of the company’s resources, and good administration of corporate and individual tax. For this reason, in the following lines, we will talk about the taxable profits in the UAE.

In this article, you will learn about the aspects of taxable profits in the UAE, the process to calculate them, how to compute them and how we can help you with this process.

  1. What are taxable profits in the UAE?
  2. Aspects of taxable profits in the UAE
  3. Types of taxable profits
  4. How to calculate your individual taxable profits?
  5. The process to calculate your corporate tax
  6. The process to compute taxable profits in the United Arab Emirates?
  7. Taxable profits VS non-taxable profits
  8. The UAE taxation system
  9. How can we help you compute your taxable profits in the UAE?

1. What are taxable profits in the UAE?

Taxable profits are the part of your gross income that you use to calculate how much tax you owe in a given tax year. It can be described as adjusted gross income (AGI) minus standard deductions or allowable itemized. The taxable profits include bonuses, salaries, wages, and tips, as well as investment income and various types of unearned income.

2. Aspects of taxable profits in the UAE

Taxable profits consist of both unearned and earned income. The unearned profits that are considered taxable include government benefits (such as disability payments and unemployment benefits), canceled debts, lottery payments, and strike benefits. The taxable profits include the earnings generated from dividends, interest income, and appreciated assets that were sold during the year.

When it comes to deductions, the authorities offer individual tax filers the option to claim a list of itemized deductions or the standard deduction. Itemized deductions include interest paid on medical exceeding a specific threshold, mortgages, and a range of other expenses.

Generally, when businesses file their taxes, they do not report their revenue directly as taxable profits. Rather, they subtract their business expenses from their revenue to calculate their business profits. Then, they subtract deductions to calculate their taxable profits.

Important to realize: Marginal tax rates and tax brackets are based on taxable income, not gross income.

3. Types of taxable profits

Every person who pays taxes knows that the failure to file a report for one’s income tax can have serious consequences. So, to be sure about paying taxes, here we show you some types:

3.1 Employee compensation and benefits

This is the most common type of taxable income and includes wages and salaries, as well as fringe benefits.

3.2 Investment and business income

For self-employed individuals, they are also subject to tax liability, specifically through their business income. For example, partnership income and net rental income qualify as taxable income.

3.3 Miscellaneous taxable income

This type includes incomes that do not fit into the other types. Includes things such as death benefits, canceled debts, and life insurance. Alimony, items involved in barter trading, and income for one’s hobby are also miscellaneous taxable income

3.4 Assignment of income

This is the income that an agent recieve for you. If you agree by contract that an external party receives the income for you, you must include the amount in your income when the party receives it.

For example, if you and your employer come to the agreement that he has to pay a portion of your salary to your former spouse, you have to include the amount in your income when your former spouse gets it.

3.5 Constructively-received income

In this type, you are generally taxed on income that is available to you, regardless of whether you have it or not. A valid check that was available to you before the end of the tax year is an income you constructively receive in that year, even if you do not deposit it in your account or you do not cash the check until the next year.

For example, if the postal service tries to deliver a check to you on the last day of the tax year and you are not home to receive it, you must include the amount in your income for the tax year.

3.6 Prepaid income

Some prepaid incomes, such as compensation for future services, are included in your income in the year you receive them. However, if you use an accrual method of accounting you can defer the prepaid income before the end of the next tax year. In this situation, you must include the payment in your income as you earned it by performing the services.

4. How to calculate your individual taxable profits?

The steps to calculate your taxable profits in the UAE are the following:

4.1 Determine your filing status

To calculate your taxable profits for an individual tax return, the first thing you need to do is determine your filing status. If you do not have a spouse, you can file your taxes as a head of household (HOH) (if you have a qualifying person for whom you pay more than half of the support and housing cost) or you can fill it as a single filer.

In the case you have a spouse, you can file your taxes as married filing jointly. However, there are some instances when it makes sense to file as married filing separately.

4.2 Gather documents for all sources of income

Once you know your filing status, the next step will be to gather documents for all sources of income for yourself, your spouse (if applicable), and any dependents (if applicable). The result of all these sources of income goes by the name “gross income”

4.3 Calculate your adjusted gross income (AGI)

The next step is to calculate your AGI. Your AGI is the result of taking certain “extra attributions” to your gross income, such as loan interest, contributions to a qualifying individual retirement account, and certain education expenses.

We consider these items as “extra attributions” because they reduce your income before taking any allowable itemized deductions or standard deductions.

4.4 Calculate your deductions (itemized or standard)

After calculating your deductions, as mentioned above, you can either take the itemized deductions or the standard deduction. The standard deduction is an amount that tax filers can claim if they do not have enough itemized deductions to claim.

4.5 Calculate taxable income

The last step is to calculate your taxable income, you will need to take AGI, calculated above, and subtract all applicable deductions.

5. The process to calculate your corporate tax

The corporate tax is a form of direct tax levied on the net profit of corporations and other business entities. You can also find it as the “Business Profits Tax” or “Corporate Income Tax”. All companies whose taxable profit is greater than AED 375,000 fall under the purview of corporate tax and must pay a certain percentage of the net profit. In order to extend support to small businesses and start-ups, the corporate tax will be 0% if the net profit is up to AED 375,000.

This tax is 9% of the net profit in the company’s financial statements. For example, if the net profit is 200,000 AED, the corporate tax will be 18,000 AED (200.00×9/100).

6. The process to compute taxable profits in the United Arab Emirates

There are two approaches to calculating taxable profits, the direct method, and the indirect method. Under the direct method for calculating taxable profits, you can calculate taxable profits directly by deducting the tax allowable, the cost of goods sold, and other allowable deductions from the gross income of the corporations. In other words:

“Taxable profits = gross income – cost of goods sold – Tax allowable expenses and deductions + other taxable income”.

This is the most straightforward method of calculating taxable profits and would be even more effective if companies do not prepare their financials regularly. In the indirect method, you can calculate the taxable profit by making accounting profits as a base, adding back all disallowable expenses, deducting tax allowable expenses, adding other taxable income, and deducting non-taxable other income.

Generally, the tax authorities and companies prefer to use the indirect method to calculate taxable income. This is a reliable and very effective method to compute the corporate tax where businesses are preparing the financials regularly, and these financial statements are audited by external auditors. In addition to this, it is an easy way to calculate taxable profits as accounting profits are taken from the audited financials. And the count of any other numbers are available in the financial statements.

In both methods, the tax allowed incomes and expenses are based on the principles and rules defined in the corporate tax law and related regulations

7. Taxable profits VS non-taxable profits

Generally, the authorities consider almost any type of income taxable, but a small number of income streams are not taxable. For example, if you are a member of a religious organization who has taken a vow of poverty or work for an organization run by that order, and turns your earnings over to the other, then your income is not taxable.

Similarly, if you receive an employee achievement award, its value is not taxable as long as you meet certain requirements. If someone dies and you receive a life insurance payment, then that is a Non-taxable income as well.

Certain tax agencies define non-taxable and taxable income differently. For example, in the United States, lottery winnings are taxable. However, in Canada, lottery winnings and other unexpected one-time windfalls are non-taxable.

7.1 What is a non-taxable profit?

A non-taxable profit refers to the income received but it is not subject to taxation. However, even if these forms of compensation cannot be taxed, they still need to be reflected in the tax return.

Some examples of unearned profit are the following:

  • Interest
  • Capital gains
  • Inheritance
  • Meals and lodging
  • Child support payment
  • Gifts
  • Cash rebates from items bought
  • Welfare benefits

Other forms of unearned income can derive from loans that have been forgiven, winning from casinos or lotteries, and government benefits (like unemployment benefits or disability).

8. The UAE taxation system

The United Arab Emirates does not levy an individual income tax. However, it levies a corporate tax on foreign banks and oil companies. Excise tax is levied on items that are harmful to the environment or human health. Another type of tax is the Value Added Tax (VAT) and this is levied on a majority of services and goods.

9. How can we help you compute your taxable profits in the UAE?

Ensuring that a company lasts over time and can call itself successful is, without a doubt, a process that requires a lot of effort and time. However, our professionals can make this process easier for you. With more than twenty years of experience, Connect Zone is the ideal business setup agency to carry out any administrative or legal process you need. Our staff is highly trained to establish relationships with the corresponding government entities and to address any questions and inconveniences that may occur.

Some of the services you can enjoy with us are full support and guidance during the solicitation process for a freelance visa, a wide range of PRO services, and more.

In addition, if you are looking for a place where to set up your virtual office or a coworking space, we can offer you the best business centers in the UAE.

Do you want to start a new stage in your life by living and working in the United Arab Emirates? Our team is just a call away! You can call us at +971 43 316 688 or send us an email at contact@connectzone.ae. Our specialists will assist you as soon as possible when you contact us.

Has your job hunt been fruitful so far? Try thetalentpoint.com and meet recruiters in the UAE by registering and uploading your CV. A wide range of employers from all fields are looking for your talent! You can also send your CV to contact@thetalentpoint.com.

What really are deferred tax liabilities?

deferred tax liabilities

For a company to stay afloat, it takes more than investment and workforce. A prosperous business is based on a well-organized administration, the proper utilization of resources, and timely compliance with the country’s laws and regulations. One of the most important regulations to follow has to do with taxes and their administration. For this reason, in the following lines, we will talk about the deferred tax liabilities.

In this article, you will find information about the deferred tax, assets, and liabilities, how each of them works and how we can help you with the deferred tax liabilities of your company.

  1. The tax system in the UAE
  2. What is a deferred tax?
  3. What is a deferred tax asset?
  4. How do deferred tax assets work?
  5. What are deferred tax liabilities?
  6. How do deferred tax liabilities work?
  7. Is deferred tax liability a bad thing or a good thing?
  8. How can we help you with the deferred tax liabilities of your company?

1. The tax system in the UAE

The tax system in the United Arab Emirates, or rather the lack of taxes paid, is one of the main attractions of the region for many ex-pats. For instance, the employees do not pay income tax and there is no system for corporate and inheritance taxes, among others.

Some of the taxes that the UAE presents are the following:

1.1 Individual tax

Employees of the United Arab Emirates (who are GCC Nationals) are subject to a social security regime of 17.5%. Those who are UAE Nationals pay 5% (with an automatic deduction off their paycheck) and the employer pays the further 12.5%. The social security obligations also apply to employees of branches and companies registered in a free trade zone.

1.2 Corporate tax

The corporate taxes apply to oil companies and foreign banks in the UAE. However, if you establish your company in one of the 45 free zones in the country, you can be exempt from paying tax for a period that can be extended. There are no capital gain taxes unless the company is taxable under another income tax. Note that you can check out an extensive variety of information regarding corporate tax in our insights section.

1.3 Income tax

The United Arab Emirates does not levy a tax on income. In other words, an income tax return is not necessary since the individual tax is not applicable in the country. The same also applies to self-employed individuals and freelancers who live in the country.

1.4 Tourist facility tax

The resorts, hotels, and restaurants (among others) must charge the following taxes:

  • Service charge (10%)
  • City tax (6-10%)
  • Municipal fee (10%)
  • 10% on the room rate
  • Tourism fee (6%)

1.5 Property transfer tax

A transfer charge applies to all property transfers in the UAE. This varies according to the Emirate, for example, in Dubai, this tax is 4%. Although the seller and buyer share the burden of this, the buyer, generally, pays the transfer fee.

1.6 Value Added Tax (VAT)

The Value Added Tax rate of the UAE is 5%. However, this tax does not apply to certain products. For example:

  • International transportation
  • Investment-grade precious metals
  • Some education and healthcare services
  • Exports of goods and services outside the GCC
  • Newly constructed residential properties

In 2020, due to the COVID-19 pandemic, the government exempted some personal protective equipment, such as single-user gloves, chemical disinfectants, textile and medical masks, and antiseptics.

This is just a list of certain basic taxes. However, we will enter the world of managing a company and managing its taxes.

2. What is a deferred tax?

A deferred tax is an important part of a company’s balance sheet. Managing this factor helps reduce the taxable income. The deferred tax generally has a positive or negative effect on the balance sheet. This entry can be in the form of assets or liabilities.

In the event that the entrepreneur has paid advance taxes and has received a tax credit that can be used in the future, it will fall under assets. Alternatively, when a company is liable to pay additional taxes in the future, it will be considered a liability.

3. What is a deferred tax asset?

A deferred tax asset (DTA) is an entry in the balance sheet that shows a difference between the internal accounting of the company and the taxes owed. For example, if your company paid its taxes in full and then received a tax reduction for that period. You can use that unused deduction in future tax files as deferred tax assets.

3.1 What type of asset is a deferred tax asset?

This tax is an intangible asset because it is not a physical object like buildings or equipment. It only exists on the balance sheet.

3.2 Is the deferred tax asset a financial asset?

Yes, this tax is a financial asset because it shows a tax overpayment that can be redeemed in the future.

3.3 When does a deferred tax asset have to be used?

These tax assets have no expiration time, they can use it when and how best suits the business.

3.4 Where can you find the deferred tax assets on the balance sheet?

In the balance sheet, you can find this tax as “Non-current taxes”

3.5 Situations where deferred tax assets may arise

Some of the reasons why deferred tax assets may appear are the following:

  • The tax bases or rules for assets and liabilities are different
  • The tax of the revenue is ready before you recognized it
  • The taxing authority takes into account the expenses before they recognized it

Please know that while you can use the deferred tax assets for future tax files, you cannot use them to tax files in the past.

4. How do deferred tax assets work?

To better understand the concept of tax assets, we will present an example: Imagine that you use a rideshare service, but the car broke down and you had to walk home. In compensation, the company sent an AED 50 credit to your account in the app. If you had planned to spend AED 50 on ridesharing the next month, you can now budget that your spending will be 0, because the credit you have will cancel it out.

This is what the deferred tax assets represent. You haven’t used it yet, but you know it has value in the future and you can adjust your spending accordingly.

4.1 What causes deferred tax assets?

A deferred tax appears when there is a difference between the income on the tax return and the income in the accounting records of the company (income per book)

4.2 Example of deferred tax assets

  • Not operating loss: The company incurred a financial loss for that period.
  • Tax overpayment: You paid more of what you should in the previous period
  • Business expenses: When you recognize the expenses in one accounting method but not the other
  • Revenue: Instances where you collect the revenue during one accounting period but recognized in another.
  • Bad debt: Before an unpaid debt is written off as uncollectible, it is reported as revenue. When the unpaid receivable is finally recognized, the bad debt becomes a deferred tax asset.

5. What are deferred tax liabilities?

A deferred tax liability (DTL) is a tax payment that the company has marked on its balance sheet, but does not have to be paid until a future tax filing. A payroll tax holiday is a type of DTL that allows companies to put off paying their payroll taxes until a later date.

The tax holiday represents an advantage for the company today, however, in the long term it becomes a liability.

Some tax incentives may create a deferred tax liability journal entry, granting the business some temporary tax relief. However, you can collect this tax later.

In addition to this, depreciation expenses, like the annual devaluation of a fleet of company vehicles, can generate deferred tax liabilities.

5.1 Is the deferred tax liability a debt?

A DTL journal entry shows a tax payment that, due to timing differences in accounting processes, the payment can be postponed until a later date.

5.2 How can you find the deferred tax liabilities on the balance sheet?

You can find these taxes on the balance sheet as “non-current liabilities”

5.3 Reasons for deferred tax liability to arise

Some of the reasons why a deferred tax liability can arise are the following:

  • Companies, generally, try to push their profits to show maximum income to their shareholders.
  • Dual accounting of figures. For example, most companies keep multiple copies of financial statements for their personal use as well as those that are furnished to the tax authorities and the public. This is somewhat because the standard tax code and accounting rules differ heavily in key areas like expense, revenue, and depreciation of the asset.
  • Generally, companies try to push current profits also into the future to reduce the tax burden. This means more money for investment purposes rather than paying it off as tax to the government.

6. How do deferred tax liabilities work?

The deferred tax liability on a company balance sheet represents a future tax payment that the business is obligated to pay. This tax is calculated by multiplying the company’s anticipated tax rate by the difference between the taxable income and the earnings.

DTL is the amount of taxes that a company has not paid yet but it will in the future. This does not mean that the company has fulfilled all of its responsibilities. In fact, it recognizes a payment that is not yet due.

For example, a company that earned net income for the year knows that it will have to pay corporate income taxes. Because this tax applies to the current year, it must show the expenses for the same period. However, the company will not pay the tax until the next calendar year. In order to rectify the accrual/cash timing difference, the tax is saved as deferred tax liability.

6.1 What causes a deferred tax liability?

Any temporary difference between the amount of money owed in taxes and the amount of money to be paid in the current accounting cycle creates a deferred tax liability.

6.2 Deferred tax liability examples

  • Tax underpayment: The company did not pay the full amount of the tax in the previous cycle, and will have to make it up for it in the next cycle.
  • Installment sale: When you pay a product for installments, the company lists the full value of the sale on their balance sheet, but they only pay the taxes for each annual installment. The business recognizes that they have a DTL for future payments on that sale.
  • Depreciation of assets: Most businesses use an advanced asset depreciation model that results in the difference between the company’s balance sheet value and its value for tax purposes. This is the most common example of this tax.

7. Is deferred tax liability a bad thing or a good thing?

A DTL is either good or neutral, depending on the situation. This tax means that you owe money, but you do not have to pay it right away. The downside is that your business needs to have money set aside to pay this debt in the future.

8. How can we help you with the deferred tax liabilities of your company?

One of the most important aspects of a company is the administration of its finances and handling of taxes. Connect Zone is the best business setup agency to carry out all the administrative processes you need. Our professionals will accompany you at every step and will offer you valuable advice so that you make the best decisions.

With more than 20 years of experience, Connect Zone can offer you a series of top services for your company, such as the application for a freelance visa, and a virtual office so you can work in one of the greatest business centers.

In addition, we can provide you with Public Relations Officer services.

Would you like to know us better and the opportunities we offer? You can contact us at +971 43 316 688 or you can send us an email at contact@connectzone.ae One of our specialists will give you personalized attention.

If you are interested in learning about job chances in the Middle East, try thetalentpoint.com. Create an account and upload your resume to start sending applications. Finding the best opportunities has never been easier! You can also send your CV to contact@thetalentpoint.com for a chance to work with the best professionals.

Know about the VAT refund available in the UAE

VAT refund in the UAE

The United Arab Emirates is one of the countries that offer the greatest job opportunities for entrepreneurs. However, these opportunities bring with them a series of regulations that investors must comply to the letter. One of the many regulations has to do with taxes on companies, tourists, etc. In the following lines, we will talk about the VAT refund in the UAE.

In this article, you will find information about the Value Added Tax, the registration process, and the VAT rates. You will also get to know what is a VAT refund in the UAE and how we can help you with this process.

  1. What is VAT?
  2. How to register for VAT?
  3. What are the VAT rates?
  4. VAT implementation in the UAE
  5. VAT for businesses
  6. How is the VAT refund process in the UAE?
  7. Who is eligible for a UAE tourist VAT refund?
  8. How can we help you with the VAT refund in the UAE?

1. What is VAT?

The Value Added Tax or VAT is an indirect tax imposed on most supplies of services and goods that are bought and also sold. You can also find this tax as a “good and services tax”.

VAT is one of the most common taxes around the world. Around 150 countries have implemented VAT, including all the countries of the European Union, Australia, Canada, New Zealand, Malaysia, and also Singapore.

This tax appears in each step of the “supply chain”. Generally, final consumers bear the VAT cost while businesses account and collect for the tax. Acting, in a certain way, as a tax collector on behalf of the government.

A business pays the government all the taxes it collects from customers while it may also receive a refund on tax that it has paid to its suppliers. The tax receipt to the government indicates the “valued add” throughout the supply chain.

2. How to register for VAT?

The registration may be voluntary or mandatory, depending on the business revenue generated.

2.1 Mandatory registration

A company must register for VAT if the total value of its imports and sales within the UAE exceeds the mandatory registration threshold of AED 375,000 for the previous 12 months or within the upcoming 30 days.

2.2 Voluntary registration

A company can voluntarily register for VAT if the total value of its imports and sales within the UAE exceeds the voluntary registration threshold of AED 187,500 for the previous 12 months or within the upcoming 30 days.

Small scale businesses and startups can also register voluntarily if their expenses exceed the voluntary registration threshold, thereby making them eligible for a tax credit.

3. What are the VAT rates?

The VAT rate is 5% for most services and goods except for these exempted or 0% tax categories.

3.1 0% VAT

  • Goods and services exported outside the GCC
  • Certain education and healthcare supplies
  • International transportation
  • Newly constructed residential properties
  • Certain investment-grade precious metals (e.g silver and gold of 99% purity)

3.2 VAT exempt

  • Public transport
  • Life insurance
  • Residential properties
  • Certain financial services

4. VAT implementation in the UAE

The UAE Federal and Emirates government provide residents and citizens with many different public services. For example, roads, public schools, hospitals, waste control, parks, and police services. The citizens pay for these services using government budgets.

Value Added Tax provides the United Arab Emirates with a new source of income, thus contributing to the continued provision of high-quality public services in the future.

It also helps the government to reduce the dependence on income derived from oil and hydrocarbons.

4.1 VAT implementation in coordination with other GCC countries

The UAE is part of a group of countries that are connected through “the Economic Agreement between the GCC States” and “the GCC Customs Union”. This group of countries has historically worked together to design and implement new public policies that boost the economy of the nations.

5. VAT for businesses

All companies in the UAE need to record their financial transactions and ensure that these records are accurate and also up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial record) must register for VAT. Companies that do not believe it is necessary to register for VAT must maintain their financial record in any event. Just in case the government needs to establish whether they should be registered.

5.1 VAT-registered businesses generally

  • Keep a range of business records
  • Reclaim any VAT they’ve paid on business-related services or goods.
  • Charge VAT on services or taxable goods they supply.

If you register your company in the Value Added Tax, you must report the amount of VAT you have charged and also the amount of VAT you have paid to the government on a regular basis. This must be a formal submission and you must report it online.

If you charged more VAT than you paid, you will have to pay the difference to the government. If you paid more tax than you’ve charged, you are entitled to reclaim the difference.

5.2 VAT in real estate

The handling of VAT will depend on whether it is a residential or commercial property. Supplies (including leases or sales) of commercial properties are taxable at the standard VAT (i.e 5%)

On the other hand, the Value Added Tax does not apply to supplies of residential properties. This ensures that this tax does not constitute an irreparable cost to those who purchased property. In order to ensure that real estate developers can recover VAT on the construction of residential properties, the first supply of these properties within three years of completion at the time of VAT introduction is zero-rated.

5.3 Zero-rated sector

The following main categories of supplies will have a 0% VAT:

  • International transportation and related supplies
  • Exports of services and goods outside the GCC
  • Certain investment-grade precious metals (e.g silver, gold of 99% purity)
  • Supply of certain healthcare services, and also the supply of relevant goods and services.
  • Newly constructed residential properties.
  • Supply of certain education services, and also the supply of relevant goods and services.

5.4 VAT-exempt sectors

Some of the categories exempted from VAT are the following:

  • Bare land
  • Local passenger transport
  • Residential properties
  • The supply of some financial services

6. How is the VAT refund process in the UAE?

A company can receive a refund from the government on tax that it has paid to its suppliers. To get a tax refund you must follow these simple steps:

  • Log in to the respective governmental entity portal
  • Select a VAT refund request
  • Complete the requested form
  • You will receive an email from the respective governmental entity detailing the result of your application.

6.1 VAT refund in the UAE for business visitors

The foreign businesses that meet the following conditions are eligible to apply for a VAT return:

  • They are not taxable people in the UAE
  • The company has no place of establishment or fixed establishment in the UAE or any GCC-implementing state.
  • They are not carrying any business in the UAE

The time to claim each refund is twelve months, and the minimum amount of each tax claim submitted by business visitors under the Foreign Business Scheme is AED 2,000.

6.2 New residences

The new residence VAT refund scheme applies to all UAE nationals that meet the following criteria:

  • A natural person should be the one who makes the claim.
  • The claim should be related to a newly constructed building to be used solely as a residence of the person or the person’s family.

Under this scheme, people can claim a refund of the tax paid on the expenses of constructing the residence.

The VAT refund in the UAE applies to the following expenses:

  • Services provided by contractors, including services of engineers, architects, builders, and other similar services necessary for the successful construction of the residence.
  • Building material (goods of a type normally incorporated by builders in a residential building) This does not include electrical appliances or furniture.

You must deliver the refund form to the corresponding government entities within 6 months after the date of completion of the building. The date of completion is:

  • When the building is certified as completed by the municipality.
  • When the building becomes occupied.

6.3 Tourist

The visitors and tourists can claim a refund on VAT paid for purchases made during their stay in the country. The recovery of the payment will be made through a fully integrated electronic system that connects the retailers registered in the “Tax Refund for Tourists Scheme” with all ports of entry and exit from the UAE.

In order for a tourist to be able to claim a VAT refund in the UAE he must meet the following conditions:

  • The goods must be purchased from a retailer who is participating in the “Tax Refund for Tourists Scheme”
  • The tourist must have the explicit intention of leaving the UAE within 90 days from the date of supply.
  • The process of export and purchase of goods must be carried out according to the requirements and procedures determined by the Federal Tax Authority.
  • The individual has to export the purchased goods out of the UAE within 90 days from the date of supply.

6.4 Validation of the refund claim

All claims made by tourists must be validated at different validation points – special devices placed at departure ports. For example, border ports, seaports, and airports in the United Arab Emirates. Another example is if you are leaving Dubai as a tourist, you can perform the VAT refund process at the VAT counter at Dubai Airport.

A more detailed process is the following:

  • Go to the designed validation point before checking in your luggage.
  • Approach the immigration counter and present the original receipt with the Tax-free tag on it, a copy of your credit card, your passport, and obviously, the product purchased.
  • After the successful validation, you can choose to refund via cash or card.
  • Lastly, you will receive your refund.

Tourists can receive up to 85% of the total VAT amount. The remaining 15% is charged as administration fees. Also, please note that cash refunds are capped at AED 7,000 per day, following the new regulations imposed by the Federal Tax Authority.

This aims to reduce the shopper’s reliance on cash during financial transactions and help them to take advantage of the country’s technological advancement.

There is no limit on the maximum recoverable amount if the transactions are made through a credit card.

7. Who is eligible for a UAE tourist VAT refund?

Not all tourists can claim a VAT refund in the UAE. Due to certain regulations, only the following people are eligible for a VAT refund:

  • Travelers aged 18 or over who are not residents of the United Arab Emirates
  • GCC Nationals can claim VAT refunds
  • Not a crew member on flights leaving the country.

Noe that additional regulations may apply to GCC Nationals residing in foreign countries for studying

8. How can we help you with the VAT refund in the UAE?

A quality tax, accounting service, and a VAT refund in the UAE are essential for the development of any company. Our team of professionals is ready to offer an end-to-end service of guidance and support to run your business efficiently and smoothly.

Some of the services that Connect Zone can offer your company are the following, a wide range of PRO services to keep your company organized and up to date.

You will have our full support during your application process for a freelance visa, and also we will find an office for your business in one of the best business centers.

If you are ready to start the journey of getting a VAT refund in the UAE with us, our team is waiting for your call. Contact us and discover all the ways in which we help you; +971 43 316 688 or email us at contact@connectzone.ae.

Are you in search for jobs? The Talent Point is the ideal place for you. Get ready to meet and connect with the best companies in the Middle East. If you are interested, send your CV to thetalentpoint.com or via contact@thetalentpoint.com.

What are VAT consultants in the UAE?

VAT consultants in the UAE

Although the UAE has positioned itself as a region full of job opportunities for foreign investors, all of them must comply with the different laws and regulations in order to operate legally in the country. The local government is quite strict when it comes to filing tax and VAT returns. For this reason, it is important to hire VAT consultants in the UAE to take care of all the procedures and ensure the successful conclusion of each one of them.

In this article, you will find information about the value added tax, what are the laws related to taxes in the Emirates, how you can register your company to comply with this tax, and more.

  1. What is VAT in the UAE?
  2. How to know if VAT applies to your company?
  3. How to register a business for VAT?
  4. Implications of value added tax
  5. How to declare VAT in the UAE?
  6. Why is it important to hire VAT consultants in the UAE?
  7. How can we help you with your company’s value added tax?

1. What is VAT in the UAE?

Value Added Tax (VAT) is one of the different taxes imposed by the UAE government. Introduced in 2018, it relies on the consumption of goods and services at every point in the country’s economic supply chain.

This tax is an effective way for those registered companies to assume the role of tax collectors on behalf of the Federal Tax Authority, with the final consumer assuming the cost of VAT.

If you are a new entrepreneur in the country and you do not have much knowledge about the tax laws and the different requirements that you must meet when setting up a business in the UAE, it is advisable that you hire the best VAT consultants to guide you and advise you throughout the process.

1.1  Aspects about value added tax in the UAE

The government imposed taxes to generate revenues for public services. For example, it is for security, transportation, and hospitals. Although there are different types of taxes in the UAE, they can be mainly divided into two categories:

  • Indirect taxes collected by an intermediary (like a retail store) on behalf of the government.
  • Direct taxes collected by the government itself.

Value Added Tax, also called General Consumption Tax, is an indirect tax imposed on most products or services purchased or sold. Generally, the VAT rate is 5%. Also, the Federal Tax Authority is the entity in charge of conducting audits and ensuring the implementation of this tax.

Besides a new source of income, the implementation of this tax helps the UAE to reduce the country’s oil dependence.

2. How to know if VAT applies to your company?

According to the UAE’s VAT law, this tax applies to all companies that meet certain conditions. The companies that must comply with this tax, according to the government, are the following:

  • Companies with a yearly turnover exceeding AED 375k on taxable supplies and imports must register for VAT.
  • Companies with a yearly turnover greater than AED 187.5k, but less than AED 375k have the option to register for VAT.

Businesses pay the government with the tax they collect from customers. Consequently, they also receive a refund for the amount they pay to suppliers.

3. How to register a business for VAT?

Those unregistered companies can do it through the online portal on the FTA. The VAT registration process is two simple steps.

The first is setting up an e-service account. Then, you must log in to your new account and complete your VAT registration.

3.1 Create an e-service Account

Creating an e-service account is a mandatory requirement for those companies that wish to successfully register for VAT. To start this process, visit the FTA website and follow these steps:

  • Select the “sign up” button on the main page and enter data such as email ID, password, and a security code.
  • After entering the required data, an automatic email will be sent to your registered email ID for verification.
  • Once you have completed the above steps, you will be able to access your new E-service account with your password and username.

3.2 Register for VAT

When your e-service account is duly verified you will be able to enter it. After this, you will be asked to register for VAT.

Then, you will read the begin guide. This guide describes all the requirements related to VAT registration and is divided into sections that outline the data and the process necessary to complete it.

It is highly advisable that you hire the best VAT consultants in the UAE to guide you through the entire registration process and ensure a successful outcome.

However, if you prefer to do it alone, we recommend that you read the guide very carefully (to avoid mistakes). After this step, you can continue with the VAT registration form.

It is divided into eight sections that include the following:

  • Details of the applicant
  • Banking details
  • Contact details
  • About the applicant
  • Business registration
  • Declaration
  • About VAT registration
  • Review and submit

You must fill every section before moving on to the next. It is also recommended that you save your progress while moving forward as users are logged out after 10 minutes of inactivity.

After you fill in each section with the necessary information, click save and review. There, you can review your answers before submitting them.

Once you have reviewed your answers, the status of your application will change to pending. You will also get an email confirming that the FTA received your application

3.3 Documents required for a UAE VAT registration

To carry out the process of registering your company for VAT you will need to submit certain documents, which are the following:

  • Bank account details
  • Contact details of the company
  • Nature of activities or performed businesses
  • Emirates ID copy of the owners
  • An income statement from the last twelve years
  • Passport copies of the owner declared on the license
  • Business trade license copy
  • Memorandum of Association (MoA)

4. Implications of value added tax

4.1 Implication of VAT on individuals

Value Added Tax will apply to most transactions of services and goods; however, there are certain exceptions. As a result, the cost of living in the UAE is likely to increase slightly. However, this will depend on the individual’s lifestyle and spending behavior.

In other words, if the individual only spends on things that are relieved from VAT, they are very unlikely to notice any difference.

The government will include rules that will ask the different companies to clarify how much VAT an individual must pay for each transaction. According to this information, individuals can decide whether to buy something or not.

4.2 Involvement in businesses

All companies registered for VAT must be responsible for documenting their costs, incomes, and associated these charges. Merchants and registered companies must charge value added tax to all their customers at the prevailing rate and incur VAT on the services and goods they purchase from suppliers.

Note that the UAE government will pay or claim the difference between sums.

4.3 VAT registered businesses generally…

  • May reclaim any VAT they paid on services and products related to the company.
  • Must charge VAT on taxable services or products that they offer.
  • Will keep the business records, which will allow the government to check that the company carries out its activities according to the legality of the United Arab Emirates.

Businesses registered for VAT must report how much they have charged for it and how much they have to pay to the government regularly. It must be a formal submission and you must do the report online.

If the company has charged more value added tax than they have paid, they must pay the difference to the government.

If, on the other hand, the company has paid more than they have charged, then they can claim the difference.

5. How to declare VAT in the UAE?

At the end of each tax period, companies registered for VAT must submit a VAT return to the FTA.

A vat return is a summary of the value of purchases and sales that a taxpayer has made during the tax period, and shows the taxable person’s VAT liability.

5.1 Liability of VAT

The liability of VAT is the difference between the input tax (VAT incurred on purchases) recoverable in a specific period and the output tax payable (VAT charged on supplies of services and goods) for the same period.

When the output tax exceeds the input tax, you must pay the difference to the FTA. Contrarily, when the input tax exceeds the output tax; the person who pays this tax will receive the difference back.

5.2 How to file a VAT return?

To file a VAT return, you must do it electronically through the FTA online portal. Before filling out this form, make sure you meet all the requirements.

5.3 When should a business file a VAT return?

Tax-paying companies must file the VAT return with the FTA regularly. Usually, you do this within 28 days of the end of the tax period.

The tax period is a specific time for which the tax to be paid must be calculated and delivered. The standard period is the following:

  • Companies with an annual turnover of less than AED 150 million must submit VAT quarterly.
  • Companies with an annual turnover of AED 150 million or more must submit it monthly.

Note that the Federal Tax Authority may, at its option, request a different tax period from certain types of companies.

If a company does not comply with the tax period and does not deliver the VAT, it can be sanctioned.

6. Why is it important to hire VAT consultants in the UAE?

The support and guidance of VAT consultants in the UAE are of utmost importance for those companies that want to maintain a credible and law-abiding reputation. The knowledge of these professionals about tax laws and the latest amendments will prevent you from making any mistakes or having any issues during the process.

Some of the reasons why you should hire the best VAT consultants in the UAE are the following:

6.1 Cost-effectiveness

Hiring this service, instead of carrying out the process yourself, is cost-effective in many ways. By deciding to hire a VAT consultant, the requirement of a supervisor, a worker, an additional manager, or tax formalities can be avoided.

6.2 Accurate reports

Accounting and reputed audit firms in the United Arab Emirates use the most advanced software to calculate value added tax, which prevents any mathematical errors.

Also, you must take into account that the wrong VAT filling can bring you problems with the UAE authorities.

6.3 Timely advice

In addition to the support of value added tax calculations, VAT Consultants in the UAE can advise you depending on the latest updates in government policies and global trends.

7. How can we help you with your company’s value added tax?

Every entrepreneur who decides to form a company in the UAE will, at some point, come across laws, regulations, and obstacles to overcome. From the simplest procedures to processes that require more time and knowledge, it is advisable to hire an agency specialized in business setup, such as our firm, to ensure that each step is carried out successfully.

Here, in Connect Zone, you will find the best VAT consultants, we can help you with the entire VAT registration process, we will offer you consultancies if you need them, and we can even help you with your company’s bookkeeping.

Would you like to receive more information about the services we can offer for your company? You can contact us at +97143316688 or also via email at contact@connectzone.ae where one of our advisors will answer any questions you may have.

Additionally, if you are looking for the best employment opportunities in the UAE and many other countries, make sure to visit thetalentpoint.com. You may also send us your CV through contact@thetalentpoint.com

Accounting plays a critical role in business planning and decision making

accounting

When deciding to form a company in the United Arab Emirates, there are several aspects that you need to take care of, for example, clearing of documents and accounting. Every successful company requires certain processes to maintain order and legality, these processes can be bookkeeping, auditing, and tax preparation, among others.

In this article you will find information about the role of accounting in business planning, why your company needs to hire this kind of service, what benefits and advantages you can acquire by performing accounting services, and how we can help you with this type of service for your company.

  1. What is accounting in Dubai?
  2. Principal areas of accounting
  3. What is the role of accounting in business planning?
  4. Golden rules of accounting
  5. Benefits of an accounting service
  6. What are the advantages of hiring an accounting service during the business planning service?
  7. Why does your company need an accounting service?
  8. How can we help you with the accounting services of your company?

1. What is accounting in Dubai?

The process is based on the documentation, authentication, recognition, and construction of the information necessary for the order of the company and its operation according to the laws of the United Arab Emirates.

In Dubai, a good accounting service, like the offered at Connect Zone, will be in charge of disclosing the profits and losses in a specific period, will carry out internal audits, will analyze the monetary information of the management, will keep the financial records of the company, and will be in charge of analyzing the value of the company’s assets.

This type of service is of the utmost importance for the financial stability of any company.

2. Principal areas of accounting

This process is generally perceived as a recording of business transactions. However, this type of service takes care of many more aspects of your company. Some of these are the following:

2.1 Forensic

This aspect is responsible for handling investigations for fraud, court and litigation cases, claims, and dispute resolution, among others.

2.2 Financial

This aspect includes the classification of business transactions and the presentation and preparation of internal and external customer financial statements.

2.3 Auditing

Internal auditing refers to the analysis of situations related to business practices and their risks. While external auditing refers to the analysis of financial records, according to a third party.

2.4 Fiduciary

This aspect is responsible for the management of certain accounts by people of power with the supervision of the company for the benefit of another person. Some examples are the following, receivership, trust accounting, state accounting, etc.

2.5 Cost

This function is responsible for analyzing and presenting manufacturing costs.Accountants determine the definite and standards cost to help the entrepreneurs to choose a favorable course of action, concerning the operations of the business.

2.6 Tax

This aspect, as its name implies, is in charge of tax planning, preparation of the tax return, and performs tax advisory services such as the following:

  • Ways to reduce taxes legally
  • Advice regarding the consequences of the decisions made
  • And other tax-related issues.

2.7 Management

This function takes as a priority the requirements of the manager. It includes financial analysis, examination of business decisions, forecasting and budgeting, and other similar areas.

2.8 Information system

This aspect is responsible for the expansion, execution, and supervision of procedures and systems.

3. What is the role of accounting in business planning?

This type of service is one of the most important features of any company and is required every day to maintain the organization. In addition to participating in the course of the day, these services are also present in the location and long-term planning of company resources.

A small error in the process can cause great delays and inconveniences in the processes of your company.

Also, it is important to note that although accounting services are responsible for the financial status of a business, they are also necessary when thinking about a business plan and making profitable decisions for the company in the long term.

4. Golden rules of accounting

There are 3 golden rules that work as basic principles to apply to any company. The golden rules of accounting are the following:

4.1 Debit the receiver, credit the giver

This rule applies to personal accounts. When a person grants something to a company, it becomes an inflow and must be credited in the account book. In turn, the receiver needs to be debited.

4.2 Debit what comes in, credit what goes out

This principle is used in the case of real accounts, this type of account includes land and building, machinery, etc. Real accounts have a debit balance by default. Hence when you debit what comes in, you are actually adding money to the existing account balance.

Similarly, when you credit what goes out, you are reducing the account balance when a tangible asset goes out of the company.

4.3 Debit all expenses and losses, credit all incomes and gains

This rule applies in the case of nominal accounts. The capital of the company is a liability, therefore, it has a default credit balance.

When you add all your income and profits, your capital increases. If on the contrary, you decide to debit losses and expenses, your capital will decrease. This is exactly what you need to do to keep the system balanced.

5. Benefits of an accounting service

Maintaining the order and legality of your company using these rules can bring you multiple benefits. Some of these benefits are the following:

5.1 Preparation of financial statements

If the golden rules of accounting are followed to the letter, as a result, all financial transactions will be properly recorded. Tax declarations such as the trading account, profit and loss account, and the balance sheet will be done quickly and efficiently if the process is well done.

5.2 Maintenance of business records

Keeping business records is essential for the success of your company. Performing the required processes will allow you to preserve your business transactions in the correct order and in a safe place.

5.3 Corporate decision making

A process based on the three golden rules will make your financial results reliable and the decision-making process in your company more logical and efficient.

5.4 Comparison of financial results

By following the three golden rules, it will become easier and faster for your company to compare the financial results of one year with those of another year. The analysis of this data year after year is of paramount importance.

5.5 Evidence in legal matters

Using the accounting organization system will allow you to keep the documents organized for quick future reference.

5.6 Budgeting and future projections

A good budget combined with good accounting practice is the perfect foundation for any business, especially if you plan to expand it. Future projections are safer and more reliable with a good organization in place.

5.7 Helps in taxation matters

Bad tax reporting can bring serious sanctions from the UAE government, damaging the image and reputation of your company.

With the proper use of accounting, entrepreneurs can trust that their taxes will always be in accordance with the law of the United Arab Emirates.

5.8 Valuation of business

The proper practice of this process helps improve your company’s brand and reputation. In this way, you can receive new and larger investments, and expand your business.

6. What are the advantages of hiring an accounting service during the business planning service?

This kind of service help companies grow. Some of the advantages that you can acquire during the process of forming your company are the following:

6.1 Provide statistical data about your business

The different functions of this process offer extremely important financial information that allows entrepreneurs to make decisions in a pertinent manner, taking into account the future of the company. It also helps external investors to have a clearer idea of ​​the nature of your business, which increases confidence and therefore investments.

Thus achieving the growth and profits of your company.

6.2 Proper allocation and utilization of resources

This function helps entrepreneurs to know which resources are being used wisely and efficiently, and which are not. In this way, entrepreneurs can make decisions with the optimization of resources in mind.

By doing this, wastage can be minimized and as a result, the company will become more profitable, as costs will be reduced.

6.3 Ensure the following of the compliance requirements

Complying with the laws and regulations of the United Arab Emirates is a priority for every company there. If the compliance requirements are not followed to the letter, the company could have problems with the government of the United Arab Emirates, and could even end up sanctioned.

This is when these services become important since they are in charge of ensuring the correct follow-up of laws and regulations and of protecting companies from certain sanctions.

6.4 Auditing process

The collection of financial information during accounting is of the utmost importance in certain processes, for example, filling for taxes, auditing, among others. If this function is not performed correctly, then none of the aforementioned processes can be carried out at all.

6.5 Preparation of budget

One of the most important things when setting up a company is budget preparation since business decisions in the future will depend on this. Using this function will ensure the prudent use of company resources. This will allow entrepreneurs prepare for any eventuality in the future.

6.6 Future plan for the company

Due to all the advantages already mentioned, accounting functions are especially important for the decision-making and planning of your company.

The collection of financial information will be of great help when planning the future movements of your company. Also, it maintains transparent relationships with investors, which means a solid foundation to gain their trust and expand your business.

7. Why does your company need an accounting service?

7.1 Find the best business structure

This process is not only about money, as many people may think. With the correct use of its functions, you will be able to find the business structure that best suits your needs. For example, partnerships, corporations, Limited Liability Companies, among others.

7.2 Advice on software using

All companies in the United Arab Emirates will need accounting software at some point. Without the help of a professional accountant, you may end up using fake software, which could spell trouble for your company.

7.3 Tracking expenses

During the transactions of your business, you must spend and generate income, if you do not keep a proper record of your transactions, confusion may occur. For this reason, all your expenses and income must be carefully monitored.

8. How can we help you with the accounting services of your company?

Every day new entrepreneurs decide to start their path as owners of a company in the United Arab Emirates, however, many do not know how to carry out certain necessary administrative processes if they want to succeed in the UAE.

As people say, the difficult thing is not to reach the top but to stay, and that is why at Connect Zone we want to be your preferred agency to carry out all the necessary administrative processes and that you and your company continue to offer a quality service.

We are expert accountants, we will take care of keeping track of your taxes, we will help you with the auditing of your business and we will even help you with the bookkeeping. You can contact us to learn more about us.

Would you like to learn more about us and the accounting services we offer? You can write to the following email info@connectzone.ae where one of our representatives will assist you.

Lastly, if you are interested in working with us, you can send us your CV through thetalentpoint.com or you can contact the following email contact@thetalentpoint.com.

Get more insight on how can an entrepreneur open a bank account

entrepreneur

The United Arab Emirates has definitely become the must-watch region when it comes to investing, its multiple free trade policies, low taxes, and its geographical location (which allows trade by air, land, and water) have drawn the attention of more than one entrepreneur.

In this article, you will learn the importance of getting a bank account for entrepreneurs, the basic steps to get an account in a UAE bank, and how you can be chosen to get an account in the United Arab Emirates for your startup.

  1. How to open a bank account for entrepreneurs?
  2. What are the types of bank accounts for an entrepreneur in the UAE?
  3. What are the requirements to open a bank account for your entrepreneurship?
  4. Who is eligible to open a bank account for entrepreneurs in the UAE?
  5. Which benefits can you get from opening a bank account for your entrepreneurship?
  6. Why do you need to open a bank account, as an entrepreneur?
  7. How to open a bank account for entrepreneurs if you are a foreigner?
  8. In which way can we help you get to know more about opening a bank account for an entrepreneur?

1. How to open a bank account for entrepreneurs?

If you are an entrepreneur looking to start a new path by investing in the United Arab Emirates or with the formation of a new company, you will need a business account from a bank in the UEA to carry out all the transactions related to your company.

You can open a business bank account in the following way:

1.1 Opening a bank account online in the Arab Emirates

The process to open a business account online is quite easy, just go to the website of the chosen bank, fill out the application form, and submit all the required documents.

1.2 Opening a business account offline in the Arab Emirates

For successful entrepreneurs residing in the UAE, it may be more convenient to go directly to the branch of the selected bank.

To deliver the corresponding documents and receive personalized attention.

1.3 Opening a business account via phone call in the Arab Emirates

Another alternative for new entrepreneurs is to make a call with the contact number of the chosen bank. The bank representative will guide you through all the steps to open your account and answer all your questions.

2. What are the types of bank accounts for an entrepreneur in the UAE?

As in the rest of the world, you can open a personal account at the bank and use it for your personal transactions. However, you should know that in the UAE it is not allowed to conduct business through your personal account.

For this reason, successful entrepreneurs open bank accounts intended solely for the use of their companies.

When you open an account at a bank in the UEA, you can choose between a saving, current, and investment account.

2.1 Current Account

Firstly, the current accounts can be used every day, by choosing this type of account you will be able to make money transfers or financial transactions and you will be able to receive a debit card, a checkbook, and a credit card (if you reside in the UAE)

Secondly, these accounts can be held in the currencies of your choice (AED, USD, Euro, etc.)

Also, if you are opening a current account for your business, you must regularly maintain a specific minimum balance, but, at the same time, you will be given the freedom to transfer funds whenever you need.

2.2 Saving Account

These types of accounts usually offer higher interest rates than current accounts, but there is a certain limitation to access the funds.

Also, these types of accounts can be saved in the currencies of your choice and you can transfer wages to them.

2.3 Investment accounts

This type of account offers a higher interest rate than the accounts shown above. However, access to funds may be limited or unavailable.

When you open this account with an amount of money, the bank manages your portfolio and invests in certain financial instruments, which allow you to earn between 3-7% per year.

Must be remembered: This is an intrabank account, so it will not appear in the information displayed in your current or saving accounts. On a quarterly basis, the bank will send extracts of the account for your review.

Most successful entrepreneurs choose a current account, as it allows them to make transactions every day without funds limitation.

3. What are the requirements to open a bank account for your entrepreneurship?

In order to open a business account, the banks of the United Arab Emirates will require certain documentation. For example, Identity, documents related to business, the address proof, etc.

Following, you will see all the required documents:

3.1 Residence and identity proof:

  • Arab Emirates ID of shareholder representative (Original and Copy)
  • Shareholder representative’s Residence Visa
  • Valid passport of shareholder representative and company director (Original and Copy).

3.2 Business Related Documentation

  • Business plan or blueprint
  • Memorandum and articles of association
  • Sources of fund disclosure
  • Company extract (through the official registry of the company)
  • Existing contracts
  • Certificate of Incorporation
  • Registry of shareholders
  • Good standing certificate

3.3 Other Required Documents

  • Information related to the kind of activities to be performed on the account
  • Letter of reference through the business partners

4. Who is eligible to open a bank account for entrepreneurs in the UAE?

To open a business account and join the club of successful entrepreneurs who have invested in the United Arab Emirates, it is necessary to meet certain specifications of the bank of your choice.

Must be remembered: Each bank has its procedures and specifications, and the bank will notify you of each of them.

Here are some general specifications:

4.1 Minimum Initial Deposit

Each entrepreneur must deposit a specific amount of money before opening the account. Each bank has a different minimum fee and must be reviewed before starting the process.

4.2 Minimum Average Balance

In order to open and maintain a business account in the UAE, you must maintain a minimum amount of money in it.

This minimum amount, again, will depend on the bank.

4.3 Savings or current account

Some banks may require the investor to have a savings or current account in order to be eligible to open a business account.

4.4 Know your customer (KYC)

All successful entrepreneurs must fill out the Know Your Customer form to facilitate the account opening process.

5. Which benefits can you get from opening a bank account for your entrepreneurship?

Opening and maintaining a business account is extremely important for new investors since it facilitates the different operations related to their companies.

Next, you will know some benefits of opening a business account in the UAE:

5.1 Purchasing Power:

The business accounts have credit services that facilitate obtaining loans, creating a positive business credit that allows larger initial purchases.

5.2 Security and protection:

By keeping personal funds and business funds separate, this bank account offers absolute security. In this way, the account holders’ data remains secure.

 

5.3 Attractive Interest Rates:

Due to the number of investors who have decided to start their business in the UAE, banks offer good interest rates for new investors, thus creating a favorable situation for both parties.

5.4 Minimum Account Balance

Most banks offer a fairly low minimum amount to open a business account. In fact, some offer zero balance, which makes it easier for an entrepreneur to start a business.

5.5 Checkbook Facility

All banking entities in the UAE offer checkbooks in the name of the company, which allows variety in payment methods.

5.6 Online Access to the Funds

The entrepreneur who is in charge of the business account has the facility of being able to see their funds through the online portal of the bank. The entrepreneur can review his funds any day, at any time.

5.7 Multiple Currencies Accepted

As shown above, the business accounts accept different currencies, it is up to the entrepreneur to choose the currency of their preference. This can be, for example, AED, USD, Euros, etc.

6. Why do you need to open a bank account, as an entrepreneur?

Once the formation of the company is completed, the need for a bank account becomes imminent.

You will require a business account to receive and send money, make financial payments, and manage business transactions.

An entrepreneur must have a bank account for the following reasons:

6.1 To make investments

From time to time, an entrepreneur will find himself in the situation of making investments, a business account facilitates this process using reminders and standing instructions.

6.2 Banking services

Banks offer various services that facilitate the maintenance and survival of the funds that enter and leave that account.

6.3 Accuracy in Maintaining Records

Business accounts are able to handle almost all types of financial transactions, thus managing to maintain a large set of records. In this way, the payment of taxes, salaries, etc., on time is facilitated.

6.4 Managing Expenses

Having a business account is very helpful when managing expenses and planning strategies for future investments, taking into account the present time of the company.

Is important to realize that, every enterprise needs a very strong foundation to use as a support to overcome any situation that may present to the entrepreneur.

Without the support of a sustainable banking system, flourishing in the Arab Emirate economy can be a rough path.

7. How to open a bank account for entrepreneurs if you are a foreigner?

There are different ways to open a bank account in the UAE if you are a foreigner, but they are all conditioned by one thing: Your residence status.

To open a bank account as a foreigner, you must present your passport (along with copies of your passport photo) and a No-Objection Certificate (NOC) from your employer or the person sponsoring your Visa.

This last requirement indicates that you need a residence in the UAE to open an international or an offshore bank account.

In addition to your passport and NOC, banks will require other types of documentation, for example, Visa, Emirates ID Card (or the copy of your application, if you are waiting for the arrival). Secondly, you will need a document that states your employer or sponsor and your salary.

Finally, you will need proof of your address. For this, you will have to share your rental agreement and a recommendation letter from another bank.

8. In which way can we help you get to know more about opening a bank account for an entrepreneur?

Connect Zone is the agency qualified to accompany you in each step of the process of opening your bank account. In this way, you can invest safely and efficiently.

Our specialists will be in charge of carrying out all the legal and financial documentation, we work with several UAE banks to guarantee the best assistance and performance.

Also, if you are a foreigner, we have the best training to carry out the process of your resident VISA, so that you can work and open your bank account in the UAE.

If you want to know more about us, Connect Zone, and get more insights on how to open a bank account for entrepreneurs, you can call us at the following number +97143316688. Also, you can send us an email to info@connectzone.ae where one of our representatives will contact you and answer all your questions.

Lastly, if you are looking for employment and want to become a part of our team, you can send your CV to thetalentpoint.com. No need to worry, your information will be safe with us, we will not share it or store it in our database.

The Top 5 Audit Companies in Dubai, UAE

audit companies in Dubai

The UAE is a perfect country for investment. Thanks to the wide range of options offered to foreign entrepreneurs, setting up a business in Dubai is remarkably easy. However, any company that wants to succeed in the UAE must resort to audit companies in Dubai to check up its processes, keep track of its records and be able to do business with local shareholders.

In this article, you will learn everything about the top 5 audit firms in UAE and the services they offer. Also, discover more about what an audit is and why you should perform one within your company on a regular basis. Furthermore:

  1. What is an audit?
  2. Audit stages
  3. What does UAE audit and accounting firms do in the UAE?
  4. Best 5 audit firms in the UAE
  5. Why do UAE companies need an audit every year?
  6. How can we help you in your company’s audit process?

1. What is an audit?

Multinational enterprises and start-ups require constant monitoring of their activities to make sure everything is working correctly. Business owners and shareholders should perform comprehensive reviews of their organizations’ processes to verify which ones are running, which are not, and which need to be modified. That is to say, an audit is required periodically.

In this sense, audits, internal or external, are processes performed by members of the company or outsiders firms every 6/12 months to ensure the accountability, functionality, and success of every process. To clarify, audits allow diagnosing, verifying, and validating the company’s activities within the objectives, UAE legal framework, and guidelines of the organization.

In the UAE, it is mandatory to perform an audit at least once a year and to submit the accounting books of the last 5 years to the auditor. In addition, it allows monitoring activities that are going well and creating strategies to counteract failures. On the other hand, all audits are objective, systematic, and transparent to improve the company’s products and processes.

1.1. Types of audit in the UAE

There are different types of audits to be performed within companies according to the nature of the organization and the activities it performs. However, the most common are:

  • Internal audits: Performed within the company by members of the same company to ensure that employees, machinery, and processes are functioning properly and legally.
  • External audits: Requested by the authorities of the UAE and carried out by an external entity. It is regularly done by audit or accounting firms in the UAE.
  • Financial audit: Finally, among the most common in the UAE are these types of audits, which help to assess damages and reduce risks to create growth strategies.

Among other common types of audits are the following:

  • Operational
  • Fiscal
  • Environmental
  • Public
  • Comprehensive and IT audits

2. Audit stages

Between the different stages audits have are:

2.1 Planning stage

The first part consists of planning the audit. To do so, it is essential to create a schedule where the different activities to be carried out by the auditors during the audit are written down. Likewise, what the start and end dates will be, as well as the resources, the format of the findings, and the results and observations of the audit in order to produce a final audit report.

2.2 Preparation stage

During this phase, the auditor creates a checklist format to perform diagnostics, evaluations, and annotations.   With this format, the auditor will record and evaluate the quality of the company’s processes and activities.

2.3 Execution, completion, and follow-up stage

Finally, it is time for the development of the audit itself. During the audit, the audit work team develops the activities of the schedule, evaluates the activities, writes them down in the checklist, and presents an audit report with the observations, failures, improvements, and possible problems.

In the same way, at the end of the audit, the audit and accounting firm deliver a complete final report, with annotations, suggestions, and possible strategies to the audited company to help them improve their processes and activities.

3. What do UAE audit and accounting firms do in the UAE?

UAE audit firms are conglomerates of foreign and local professionals in the area of corporate audit, taxation, consultancy, and accounting within the Emirates. UAE audit companies enjoy a good reputation and have an in-depth knowledge of the country’s laws and framework, helping companies to establish themselves and ensure that their processes can achieve their objectives quickly and efficiently.

Some of the services offered by the vast majority of UAE audit firms include:

  • Administrative services
  • Tax advisory services
  • Audits (quality, product, process, energy, and more)
  • Accounting
  • Assurance
  • Financial advisory
  • Risk management

4. Best 5 audit firms in the UAE

In the same vein, there are multiple audit companies in the UAE that can help you with the supervision of your company’s processes after settling down in the Emirates of your choice.

Each one offers different characteristics, charges and services to foreign and local clients. So, it is easy to find one that suits your company’s needs, vision and budget. Among the best known are:

  • Deloitte
  • PricewaterhouseCoopers (PwC)
  • KPMG (Klynveld Peat Peat Marwick Goerdeler)
  • Ernst & Young (EY)
  • Xact Auditing

All of these audit companies in Dubai offer high-quality, premium services. In addition, they have impeccable reputations, with global fame, and multicultural, highly prepared teams.

If you want to establish a company in a Free Zone or Mainland and need an audit team, these are the top UAE audit and accounting firms options:

4.1 Deloitte

With around 225,000 employees, Deloitte is one of the most recognized audit companies in Dubai and worldwide. It has one of the best-trained teams in the audit world with different branches around the globe, operating in around 100 countries.

Also, investment experts recognize this audit and accounting firm as a top recruiter of financial talent. Among the main services they offer are audits, risk management, business advisory, and tax management.

Nonetheless, being a world-renowned company, Deloitte services are not cheap. Their services are recommended to large companies with high purchasing power due to the high charges for each service.

4.2 PricewaterhouseCoopers (PwC)

Operating since 1998, PricewaterhouseCoopers, (PwC) is the UAE’s number one audit firm par excellence, providing services to several companies in the Global Fortune 500 top list.

PwC specializes in assisting the vast majority of the private sector in the Emirati market and the world, focusing on providing premium advisory, tax, and assurance services. On the other hand, their reputation precedes them

That is to say, being one of the auditing firms with an extensive list of famous national and international clients, large organizations, banking firms especially, usually hire them with their eyes closed.

However, PwC’s audit services could be expensive for small organizations or start-ups. Therefore, it is usually the large companies that contract PwC’s professional workforce.

4.3 Ernst & Young

Ernest & Young, EY, is among the top-rated audit companies in Dubai that offer high-class audit assurance, consulting, transaction services, and tax advisory. EY’s team members, on the other hand, are professional, integrated, efficient and culturally diverse.

EY’s main purpose is to provide quality service at its headquarters and branches around the world.  Likewise, since their main clients are multinational companies, the prices for their services are high. To clarify, they focus on helping large clients.

4.4 Klynveld Peat Peat Marwick Goerdeler (KMPG)

Klynveld Peat Peat Marwick Goerdeler (KMPG) is a UAE audit firm recommended for large organizations. Working since 1987, it is one of the oldest audit and accounting firms within the Emirati market. Also, KMPG enjoys an impeccable reputation, with a presence in over 155 countries.

KMPG’s skilled workforce offers premium services of:

  • Auditing
  • Consultancy
  • National and foreign taxation advisory

KMPG’s main purpose is ensuring efficiency, time-saving, and a myriad of resources to assist its extensive list of clients during their auditing processes.

4.5 Xact Auditing:

Last but not least, Xact Auditing is a renowned independent firm that is well-known for its affordable prices and high-quality services

They focus on auditing, VAT registration, tax services/advisory and accounting for large or medium-sized companies and SMEs. With a staff specialized in the Emirati market, Xact Auditing provides high-level options. To clarify, ensuring quality, good strategies, and excellence to each client

5. Why do UAE companies need an audit every year?

Audits are an essential part of a company’s development in the UAE territory. Through it, enterprises can observe in detail each process and activity of the organization. On the other hand, audits are a primal legal requirement for keeping its accounting books, tax processes and maintaining financial control of the company.

Audit companies in Dubai allow companies large and small to gain an in-depth understanding of the performance of their activities. In this way, it is possible to make effective decisions that counteract the harmful effects of errors or defects within each department.

In the same way, audits allow access to an audit report. This is a detailed report of the errors, performances, and improvements that should be made. Therefore, it allows to take a closer look at the capital flow and to create an action plan around possible investments that can be made in the company.

In addition:

  • Audits provide reliable information to senior management, owners, and shareholders of the company so they can build strategies and make effective decisions regarding the growth of the company.
  • It allows improving the quality of the company’s internal and external processes.
  • Increase the sense of responsibility of the work teams within the companies. To clarify, the managers of each department and subordinates have access to a more complete vision of each process to improve productivity and execution of activities.
  • Determine if the company’s activities go according to the UAE investment laws and guidelines

6. How can we help you in your company’s audit process?

To summarize, whether you open a restaurant, a start-up, a textile business, or a multinational organization it is essential to hire a company that can perform ongoing audits to monitor, diagnose, and develop effective strategies to help companies throughout Dubai, Abu Dhabi and the rest of the emirates.

Connect Zone is prepared to reach out to you. Our team is ready not only to assist you in finding a UAE audit and accounting firm, but we are also prepared to facilitate the process of VAT registration, taxation, and consultancy. Moreover, Connect Zone staff can advise you and provide you with different PRO services and document clearing to set up your business successfully.

Would you like to contact Connect Zone to help you learn more about audit companies in Dubai? In case you have any questions, call us on +971 43 316 688. Moreover, you can email us at contact@connectzone.ae, and you will talk to one of our representatives who will answer your questions.

Furthermore, to receive additional information, attach your resume or CV to thetalentpoint.com. Likewise, your personal information will not be stored or shared with strange people.

A detailed guide to services of VAT registration in the UAE

VAT UAE

Starting a company in the UAE is the main goal for many foreign investors. From a low tax rate to simple services of VAT registration in the UAE, Dubai offers multiple options to facilitate the business setup process. As a result, large and small companies seek to establish themselves here in order to enter into the most prolific financial and investment market in the Middle East.

In this article, you will learn everything about VAT registration services in Dubai. Likewise, you will read every detail about their functioning and how to access them. Let’s observe:

  1. What does VAT stand for in Dubai?
  2. How does VAT collection work in Dubai?
  3. What are the services of VAT registration in the UAE?
  4. What is the process for VAT registration in the UAE?
  5. Documents you will have to submit on the process for VAT registration in the UAE
  6. Benefits of VAT registration
  7. How can we help you in the process of VAT registration in the UAE?

1. What does VAT stand for in Dubai?

Contrary to general belief, in Dubai and across the UAE there is a minimum tax rate companies must pay according to their annual earnings. This additional charge is the Value Added Tax (VAT), an indirect fee added to products or services during each part of the supply chain that is lastly covered by the end consumer.

The VAT was introduced for the first time in the UAE territory in January of 2018 as an initiative of the Federal Tax Authority (FTA) to promote a new income method in the different Emirates. That is to say, under UAE tax law, this general tax rate seeks to prevent a decrease in the businesses’ and population’s purchasing power and to improve the local economy above all.

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On the other hand, UAE VAT remains low compared to the percentage rates in other countries. It is only a 5% charge rate. Therefore, it allows entrepreneurs to increase their profits and avoid losses generated by income, corporate, or trade taxes.  Likewise, it provides companies the possibility to act as tax collectors on behalf of the government.

Moreover, VAT also aims to help in the improvement of public services, decoupling from oil or hydrocarbons as the main GDP, and diversifying the country’s economy.

1.1 What activities are VAT-exempted in Dubai?

Most business economic activities are linked to VAT fee payment. Nonetheless, there are some tax-exempt financial sectors in Dubai Free Zones and Mainland. These are:

  • Food
  • Export
  • Construction services
  • Education
  • Precious metal investment
  • Healthcare
  • Gold

1.2 Why some areas of Dubai are VAT-Free?

Although in some cases it is mandatory to pay VAT, there are companies and Dubai areas that are exempted from doing it so. To clarify, let’s take a small company as an example.

By not being able to reclaim VAT fees, the small company will be forced to make their products more expensive in order to generate larger profits. However, this action could damage the brand and put at risk the original investment capital.

Therefore, to help small companies or start-ups avoid the VAT becoming a complication; there are multiple Dubai Free Zones that are tax-free. However, it is advisable to consult with a team of experts who can guide you on the ideal place to start your business in Dubai in order to avoid losses and get to know what are the best ideas for company formation nowadays.

2. How does VAT collection work in Dubai?

Now, to understand how the VAT collection works in Dubai, the best way is to use a real-life example.

For instance, if a farmer sells his vegetables to a processing company, he must add a 5% VAT fee to the original price of his products. Later, if the company processes that food and sells it to a distributor, another 5% tax charge needs to be added. This procedure will go on and on until it reaches end consumers.

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To clarify, the distributors will lastly supply the finished product to consumers, adding an additional 5% tax fee to the base price.

In this way, the final consumer is the one in charge of covering the final VAT fee when purchasing the product, while the collection of the tax is done during the supply chain through a company or individual on the government’s behalf. Nevertheless, part of this money collected will go to the FTA further.

On the other hand, VAT is charged as follows:

  • On any of the products or services distributed by an organization
  • When claiming VAT fees for any financial activity and the trade of services and goods

3. What are the services of VAT registration in the UAE?

VAT registration in the UAE is the means by which eligible businesses can collect taxes from the end consumer and pay the appropriate fee to the Federal Tax Authority. It also allows mainland and free zone businesses to obtain a refund from the government for tax paid to suppliers if requested.

One of the advantages of VAT registration in Dubai and throughout the UAE is VAT payment is not compulsory for all businesses. That is to say, VAT payment and collection will depend on the revenue a company generates annually.

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To clarify, the main criteria a company must meet to apply for VAT registration in the UAE correctly is that an organization must generate at least AED 375,000 in supplies and imports during one year. Nonetheless, companies that generate around or less than AED 187,500 annually are not forced to pay VAT.

3.1 What types of VAT registrations services are in Dubai?

In the same vein, there are two different kinds of VAT registration services in Dubai according to the taxable profits your company generates per annum. These are the Mandatory VAT registration service and Voluntary VAT registration service.

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Each one has its own criteria and conditions every business owner must know before applying as long as specific requirements. These are:

3.1.1 Mandatory VAT Registration services

The main requirement to apply for this type of VAT registration service is that the company generates more than AED 375,000.

Other conditions to fulfill are:

  • If the business profits or imports were greater than AED 375,000.
  • If the company’s projections are greater than AED 375,000 in the next 30 days.

However, there is a special condition. Those companies that comply with the above requirements and do not carry out the corresponding VAT registration in a period of time are subject to a fine payment of around AED 20,000.

3.1.2 Voluntary VAT registration services

Unlike mandatory VAT registration, this one is completely optional. Enterprises that can opt for this type of service are the ones whose taxable expenses and turnover are more than AED 187,500 but less than AED 375,000.

Companies with profits within this rank are not forced to apply for VAT registration. Nevertheless, they can do it voluntarily. Also, there is no risk of fines in case a company does not have a VAT registration in the UAE. Other conditions are:

  • Your business profits and imports were more than 187,500 in the last year
  • The company’s projection point that the taxable expenses will be more than 187,500

3.2 Other VAT registration services

Similarly, it is imperative non-exempted companies have a proper register in the VAT collecting system to keep a record of their tax collections so they can avoid misunderstandings with local activities. Likewise, other services of VAT registration in the UAE that can help you track your company’s taxable expenses are:

4. What is the process for VAT registration in the UAE?

Foreign investors and offshore business owners that share a vision to establish themselves in Dubai and meet the mandatory requirements must complete the process of VAT registration in the UAE to set up a business in the Emirati territory.

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The full process is through the Federal Tax Authority website. Likewise, it is simple, cost-effective, and quick. In the same vein, there are two parts of the process that must be completed for VAT registration to be successful:

  • Creating an e-service account
  • VAT registration procedure per se

4.1 E-service account creation

Firstly, the process to create an e-service account is very simple. Follow these simple steps:

  • Enter the FTA website to create your e-service account and click on the “sign” tab
  • Fill the required fields with your personal and company info
  • Search the verification email in your inbox
  • Lastly, log in with your verified credentials

4.2 Procedure of the VAT registration in the UAE

Secondly, what you must do for completing the process of VAT registration in the UAE successfully is:

  • Firstly, click on the “Register for VAT” after logging in to the FTA website with your e-service account credentials
  • Read the full guide “Getting Started Guide” to know everything about the VAT registration process. This step is fundamental. You must read the full otherwise you won’t be able to continue.
  • Next, click the “click here to confirm you have read the getting started guide” button in order to continue.
  • After clicking on the “proceed” tab, the page will open a form for VAT registration you must fill with the correspondent information. The form has eight sections in total
  • Submit the filled form and requested documents before submitting. Be sure to check twice everything is in order and you did not miss any information boxes
  • Lastly, click on “submit for approval” to finish

5. Documents you will have to submit on the process for VAT registration in the UAE

Additionally to the filled application form, there are some extra documents you must present in the process of VAT registration in the UAE. Amongst there are:

  • Incorporation certificate
  • Contact information
  • Articles of Association (if needed)
  • Partnership Agreement (if applicable)
  • Details of your bank account
  • Financial statements
  • A detailed list of your enterprise’s business activities
  • Custom details (if needed)
  • Owner, manager, and senior management’s Emirates ID or Passport
  • Expected values of exports and imports (if needed)

6. Benefits of VAT registration in the UAE

The registration process is done through the Federal Tax Authority’s website, making it easy, simple, and quick. In this way, small and large entrepreneurs can access VAT registration quickly, easily and from anywhere in the world with just a click.

Furthermore, other benefits you’ll enjoy are;

  • Get a Tax Registration Number
  • Have a record of your import and suppliers venues
  • Opt for VAT refunds by the FTA
  • Claim an input VAT on your organization’s expenses

6.1 What is the Tax Registration Number and how does it work?

After completing the process of VAT registration in the UAE process, your company will acquire a Tax Registration Number (TRN). It is a 15-digit unique number intended for the company can register its taxes and file them to the Federal Tax Authority further.

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In the same vein, TRN allows you to prove your business status, profits, and taxable earnings to the FTA authorities. It also facilitates the application for VAT refunds, returns, and the collection of sales tax.

7. How can we help you in the process of VAT registration in the UAE?

To sum up, VAT registration in the UAE allows big and small enterprises to track their expenses in an effective way. However, it is important you have an expert team to support you during the VAT registration process in Dubai. At Connect Zone we are more than ready to reach out to you.

With over 20 years of experience, our staff is ready to provide you with economical options during the company formation. Also, we offer a wide range of business centers available in case you want to establish in one of the Dubai Free Zone and Mainland.

On the other hand, you can access our Freelancer Visas or learn how to get a Golden Visa to settle yourself faster in the UAE.

Would you like to contact Connect Zone to help you with VAT registration in the UAE? In case you have any questions, call us on +971 43 316 688. Moreover, you can email us at contact@connectzone.ae, and you will talk to one of our representatives who will answer your questions.

If you want to receive information, attach your CV or resume to thetalentpoint.com. Moreover, your personal information won’t be stored or shared.