Audit Report for Corporate Tax in UAE: A Comprehensive Guide

As of June 1, 2023, the UAE Corporate Tax System mandates that all individuals subject to taxation must create and uphold financial statements following the accounting standards outlined by the Ministry of Finance.

Audit Report for Corporate Tax in UAE

Financial statements are obligated to precisely and fairly depict the taxable income and tax liability of individuals subject to taxation for each designated tax period. The Federal Tax Authority (FTA) possesses the right to demand that a taxable individual submit their financial statements for a given tax period. The FTA will guide the taxable person regarding the submission method and deadline for the financial statements. Additionally, the FTA has the authority to request additional information or documents about the financial statements from the taxable individual.

Understanding the Significance of an Audit Report for the Corporate Tax System

An audit report is a comprehensive document offering an impartial assessment of the accuracy and completeness of a business's financial statements. In the context of the CT system, an audit report holds crucial importance as it verifies the accurate calculation and reporting of a business's taxable income and tax liability. Moreover, it plays a pivotal role in elevating the credibility and transparency of a business's financial information, thereby mitigating the risks associated with tax evasion and avoidance.

Objectives and Advantages of an Audit Report

The primary objective of an audit report is to offer assurance to the Federal Tax Authority (FTA) and other stakeholders that the taxable individual has adhered to CT laws and accurately and fairly reported their income and expenses. Additionally, an audit report serves as a valuable tool for the taxable person to identify and rectify any errors, omissions, or discrepancies present in its financial statements, contributing to the enhancement of internal controls and governance processes. Some of the benefits derived by the taxable person from an audit report include:

• Boosting the credibility and dependability of financial statements and the CT return minimizes the likelihood of penalties, disputes, or adjustments imposed by the FTA.
• Streamlining access to finance, investment, and business opportunities, the verification of financial statements, and the CT return by an independent, qualified auditor instills confidence.
• Offering valuable insights and feedback on business performance, efficiency, and profitability, an audit report empowers taxable individuals to make well-informed decisions and strategic plans.

How to Determine Taxable Income in the UAE Corporate Tax System

Calculating taxable income in the UAE Corporate Tax System involves the following steps:

• Initially, a Taxable Person must identify their Accounting Income based on their Financial Statements, ensuring adherence to accepted UAE accounting standards (IFRS or IFRS for SMEs). If the individual is a Qualifying Free Zone Person or generates revenue exceeding AED 50 million, Financial Statements must undergo an audit.
• Subsequently, necessary adjustments to the Accounting Income must be made per the Corporate Tax Law, resulting in the determination of the Taxable Income. The Taxable Person is then required to submit a Tax Return to the FTA within 9 months after the conclusion of each Tax Period.

Requirements for Audit Reports in the UAE Corporate Tax System: Compliance Criteria

Certain Taxable Persons are obligated to have their Financial Statements verified by an external licensed auditor. This mandate is outlined in Ministerial Decision No. 82 of 2023, specifying the categories of Taxable Persons required to prepare and maintain audited financial statements under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. As per this decision, the following Taxable Persons are obliged to prepare and maintain audited financial statements:

• Individuals subject to taxation with revenue surpassing AED 50,000,000 (fifty million United Arab Emirates dirhams) within the applicable Tax Period.
• Qualifying Free Zone Persons.

Audit Reports and Financial Statements for Partnerships

In certain cases, the Minister of Finance has the authority to mandate specific types of taxable individuals to prepare and retain financial statements subject to audit or certification by a third party. The UAE Corporate Tax System extends its applicability to partners involved in an Unincorporated Partnership. The Federal Tax Authority (FTA) has the prerogative to request partners within such partnerships to furnish financial statements, delineating the following details:

• The comprehensive depiction of total assets, liabilities, income, and expenditure within the Unincorporated Partnership.
• The partner's distributive share concerning assets, liabilities, income, and expenditures within the Unincorporated Partnership.

Partners are obliged to prepare and maintain these financial statements in alignment with the accounting standards specified by the Ministry of Finance. Additionally, when requested, partners must submit these financial statements to the FTA.

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Preparation and Submission of CT Audit Report

Executing an audit report for Corporate Tax (CT) purposes involves a structured process:

Appointment of Auditor:

The taxable person is obligated to appoint and compensate an auditor who holds valid licensing and registration from the competent authorities in the UAE. The chosen auditor must maintain independence from the taxable person and its associated parties.

Provision of Information to the Auditor:

The taxable person must furnish the auditor with comprehensive information, documents, and records related to their business activities, encompassing income, expenses, assets, liabilities, transactions, financial statements, and the CT return.

Audit Standards and Procedures:

The auditor is required to conduct the audit in strict adherence to the auditing standards stipulated by the Ministry of Finance in the UAE (IFRS or IFRS for SMEs). Additionally, the relevant accounting standards and the CT law must be applied to scrutinize the financial statements and CT returns of the taxable person.

Audit Report and Opinion:

The auditor assumes the responsibility of preparing and signing the audit report. An opinion is expressed on whether the financial statements and the CT return align with the applicable accounting standards and CT law, and if they present an accurate and equitable representation of the financial position and performance of the taxable person.

Submission of Audit Report:

Upon request, a taxable person may be mandated to submit the financial statements utilized in determining taxable income for a specific tax period. The submission should adhere to the format, method, and timeline prescribed by the Federal Tax Authority (FTA).

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Writing an Effective Audit Report for the CT System: Best Practices and Tips

To create a compelling audit report for the Corporate Tax (CT) system, consider the following best practices and tips:

Select a qualified and reputable auditor:

Opt for an auditor with a proven track record, possessing expertise in the UAE tax environment, and familiarity with the business's industry.

Maintain accurate accounting records:

Ensure that accounting records and supporting documents align consistently with both the prescribed accounting standards and the CT system.

Regular communication with the auditor:

Establish open lines of communication with the auditor, providing timely and comprehensive information and explanations as requested throughout the audit process.

Review and discuss the draft report:

Collaborate with the auditor to review the initial draft of the audit report. Discuss any findings or recommendations, fostering a thorough understanding before finalizing the report.

Timely and accurate submission to the FTA:

Submit the completed audit report to the Federal Tax Authority (FTA) promptly and accurately, adhering to prescribed timelines. Retain a copy of the report for future reference and documentation.