Market Insights & Updates
Recent Amendments in Audit Requirements for Financial Institutions in the UAE
The UAE has introduced significant amendments to audit requirements for financial institutions to enhance financial transparency and compliance. The UAE Central Bank mandates that financial institutions conduct external audits aligned with IFRS and its regulations. Institutions are required to appoint external auditors annually, based on recommendations from their Board Audit Committees and approval from the Central Bank. To maintain audit integrity, external audit firms must be rotated every six years, with audit partners changing every three years.
In addition, the UAE has strengthened Anti-Money Laundering regulations, compelling banks to implement robust compliance measures, including KYC protocols and CDD, to combat financial crimes. Financial institutions must also adhere to the Federal Tax Authority's VAT audit requirements, maintaining VAT records for five years and filing returns based on taxable revenue.
Furthermore, the UAE has enacted Federal Decree-Law No. 41/2023, regulating the accounting and auditing professions. This law introduces mandatory professional licenses, requires practitioners to uphold professional integrity through written pledges, and mandates professional liability insurance to enhance accountability and transparency in the financial sector. Collectively, these amendments underscore the UAE's commitment to aligning with international standards and promoting a transparent financial environment.
Does VAT Apply to Consultancy Services Provided During an IPO?
The applicability of VAT on consultancy services during an Initial Public Offering in the UAE is subject to interpretation under current VAT laws. One perspective suggests that VAT incurred on IPO-related expenses, such as legal and consultancy fees, is non-recoverable because these costs are directly associated with the issuance of equity shares, a financial service exempt from VAT.?
Conversely, another viewpoint considers these expenses as general business overheads, integral to the company's broader operations aimed at generating taxable supplies in the future, thereby making the VAT on such expenses potentially recoverable.
Given these differing interpretations, companies should conduct a thorough analysis of their specific circumstances to determine the correct VAT treatment of IPO-related consultancy services.
UAE Corporate Tax: Multinational Subsidiaries Have Sufficient Time to Be in Sync
The UAE implemented a 15% Domestic Minimum Top-up Tax (DMTT) on large multinational enterprises starting January 1, 2025. This aligns with the OECD's global tax agreement, targeting MNEs with consolidated revenues exceeding €750 million.?
The UAE provides extended filing deadlines for these entities, granting 15 months to file top-up tax returns and 18 months for the first compliance year, allowing ample time for adaptation. This approach underscores the UAE's commitment to aligning with international tax standards while maintaining its appeal as a business hub.
UAE Corporate Tax: Can Freelancers and Influencers Meet the March 31 Registration Deadline?
In the UAE, freelancers and social media influencers with annual revenues exceeding AED 1 million are required to register for corporate tax by March 31, 2025. This deadline provides these professionals ample time to align with the new tax regulations.?
It's important to note that those earning below the AED 1 million threshold are exempt from this registration requirement. Additionally, individuals with annual turnovers between AED 1 million and AED 3 million may qualify for the UAE's Small Business Relief program, provided they maintain proper accounting records.
For freelancers operating without a formal legal entity, the AED 1 million threshold applies. However, if a freelancer establishes a company as a 'juridical person,' this threshold does not apply, and registration is mandatory regardless of income level.?
To ensure compliance and avoid potential penalties, freelancers and influencers should assess their income levels, maintain accurate financial records, and register for corporate tax if they meet the specified criteria. Consulting with tax professionals can provide additional guidance tailored to individual circumstances.
UAE Gives More Time to Update Tax Records, Without Incurring Penalties
The UAE Federal Tax Authority has introduced a grace period from January 1, 2024, to March 31, 2025, allowing businesses to update their tax registration details without incurring administrative penalties. This initiative aims to encourage compliance and ensure that tax records accurately reflect current business information.
Typically, businesses are required to inform the FTA within 20 working days of any changes to their business information, such as a change of address, a shift in business activities, or alterations to their legal structure. Failure to do so can result in fines, with initial violations incurring a penalty of AED 5,000 and repeated violations attracting fines of AED 10,000.
During this grace period, businesses can rectify any outdated or incorrect information without facing these penalties. Moreover, if penalties were imposed between January 1, 2024, and the implementation of the grace period, those will be reversed.?
The FTA's decision to introduce this grace period reflects the UAE's focus on encouraging self-compliance. By making it easier for businesses to update their records without fear of penalties, the FTA is fostering a culture of self-responsibility in the business community.
Businesses are advised to take advantage of this opportunity to ensure their tax records are accurate and up-to-date, thereby avoiding potential penalties after the grace period concludes. Consulting with tax professionals can provide additional guidance tailored to individual circumstances.