Accounting is an essential part of any business, as it helps to measure and report the financial performance and position of the company. Accounting also helps to ensure compliance with the laws and regulations that govern business activities and transactions. In this article, we will provide a comprehensive guide for businesses on how to comply with the accounting laws in UAE, covering the following topics:
- What are the accounting laws in UAE, and why are they important?
- What are the primary sources of accounting laws in the UAE?
- Who are the leading authorities and regulators of accounting in the UAE?
- Accounting standards and principles
- Accounting requirements and obligations
- Accounting practices and services
What are the accounting laws in UAE, and why are they important?
Accounting laws in UAE are the legal rules and regulations that specify how businesses should maintain and present their accounting records and financial statements. Accounting laws in UAE are essential for several reasons, such as:
- They ensure the accuracy, reliability and transparency of the financial information used by various stakeholders, such as owners, investors, creditors, customers, suppliers, regulators and tax authorities.
- They protect the rights and interests of the stakeholders by preventing fraud, misrepresentation, manipulation and abuse of financial information.
- They facilitate comparing and analyzing different businesses’ financial performance and position within the same industry or across various sectors.
- They promote the economy’s development and growth by enhancing the stakeholders’ confidence and trust in the business environment.
What are the primary sources of accounting laws in the UAE?
The primary sources of accounting laws in the UAE are:
- Federal Law No. 2 of 2015 on Commercial Companies (CCL) applies to all companies operating on the mainland (except for those exempted by Article 4) and regulates their formation, management, governance, dissolution and liquidation. The CCL also requires all companies to maintain proper books of accounts and prepare annual financial statements by the International Financial Reporting Standards (IFRS).
- The Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT) applies to all businesses that supply goods or services in UAE (except for those exempted or zero-rated) and imposes a 5% tax on their taxable supplies. The VAT law also requires all taxable persons to register for VAT, issue tax invoices, file tax returns and pay tax dues on time.
- The Federal Decree-Law No. 9 of 2016 on Bankruptcy (BCL) applies to all natural or legal persons engaged in economic activities in UAE (except for those excluded by Article 3) and provides a legal framework for dealing with their insolvency situations. The BCL also requires all debtors to keep accurate and up-to-date accounting records and disclose them to their creditors or trustees.
- The respective free zone laws and regulations, which apply to all companies operating in any of the free zones in UAE (such as Dubai International Financial Centre, Abu Dhabi Global Market, Jebel Ali Free Zone, etc.) and provide them with various incentives and benefits, such as 100% foreign ownership, tax exemptions, customs duty waivers, etc. The free zone laws and regulations also specify their accounting requirements and standards for their registered companies.
Who are the central authorities and regulators of accounting in the UAE?
The main authorities and regulators of accounting in the UAE are:
- The Ministry of Economy (MOE) is responsible for overseeing the implementation and enforcement of the CCL and ensuring its compliance by all companies on the mainland. The MOE also issues licenses, approvals, certificates and permits for various business activities and transactions.
- The Federal Tax Authority (FTA) is responsible for administering and collecting VAT and excise tax in UAE. The FTA also provides taxpayers guidance, support and education on their tax obligations and rights.
- The Securities and Commodities Authority (SCA) regulates the capital markets in UAE. The SCA also sets the accounting standards and disclosure requirements for all companies listed on any of the stock exchanges in the UAE (such as Dubai Financial Market, Abu Dhabi Securities Exchange, NASDAQ Dubai, etc.).
- The Central Bank of UAE (CBUAE) is responsible for supervising and regulating the banking sector in UAE. The CBUAE also sets the accounting standards and prudential rules for all banks operating in UAE.
- The respective free zone authorities (FZAs) manage and regulate their free zones in UAE. The FZAs also set their accounting requirements and standards for their registered companies.
Accounting standards and principles
Accounting standards and principles are the rules and guidelines that specify how accounting transactions and events should be recorded, measured, presented and disclosed in the financial statements. Accounting standards and principles ensure that the financial statements are consistent, comparable, reliable and relevant for the users.
The standard accounting principle generally followed in UAE is the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). IFRS is a set of accounting frameworks that serve as a basis to regulate and organize financial information. IFRS proposes guidelines and rules that ensure companies follow a standard accounting system.
UAE has no Generally Accepted Accounting Principles (GAAP) of its own. However, some specific sectors or entities may have to follow other accounting standards or principles, such as:
- The banking sector has to follow the accounting standards and prudential rules issued by the Central Bank of UAE (CBUAE).
- The insurance sector has to follow the accounting standards issued by the Insurance Authority (IA).
- The Islamic finance sector has to follow the accounting standards published by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
- The public sector must follow the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants (IFAC).
All companies operating in UAE, whether on the mainland or in the free zones, must comply with IFRS or other applicable accounting standards and principles. They must also ensure that a licensed auditor in the UAE audits their financial statements.
Accounting requirements and obligations
Accounting requirements and obligations are the legal duties and responsibilities businesses have to fulfil concerning their accounting records and financial statements. Accounting requirements and obligations aim to ensure that companies maintain proper books of accounts and prepare accurate and timely financial reports.
The principal accounting requirements and obligations for businesses in UAE are:
- To maintain books of accounts that show their transactions and financial position accurately and clearly. The books of accounts should include journals, ledgers, invoices, receipts, vouchers, contracts and any other supporting documents.
- Prepare annual financial statements that include a balance sheet, an income statement, a statement of changes in equity, a cash flow statement and notes. IFRS or other applicable accounting standards and principles should prepare the financial statements.
- Keep the books of accounts and financial information for at least five years from the financial year’s end or longer if law or contract requires. The books of reports and financial statements should be kept at the company’s head office or any other place approved by the authorities.
- Submit the audited financial statements to the relevant authorities within four months from the end of the financial year or as specified by law or contract. The company’s management and auditor should sign the audited financial statements.
- To comply with any tax laws and regulations that may apply to their business activities and transactions, such as value-added tax (VAT), excise tax, corporate income tax (for some sectors or entities) or withholding tax. The tax laws and regulations may require businesses to register for taxes, issue tax invoices, file tax returns and pay tax dues on time.
Accounting practices and services
Accounting practices and services are businesses’ methods and procedures to perform accounting functions and tasks. Accounting practices and services aim to help companies to manage their accounting records and financial statements efficiently and effectively.
The different types of accounting practices and services in UAE are:
- In-house accounting is when businesses hire their own accountants or bookkeepers to handle their accounting functions internally. In-house accounting gives companies more control and flexibility over their accounting processes but also requires more resources and expertise.
- Outsourced accounting: Businesses hire external accountants or bookkeeping firms to handle their accounting functions externally. Outsourced accounting gives businesses more convenience and cost-effectiveness over their accounting processes, but it also requires more trust and coordination.
- Cloud-based accounting is when companies use online software or applications to handle their accounting functions remotely. Cloud-based accounting gives businesses more accessibility and scalability over their accounting processes but also requires more security and reliability.
Businesses in UAE can choose any accounting practice or service that suits their needs and preferences. However, they should also consider some factors, such as:
- The size and nature of their business
- The complexity and volume of their transactions
- The level of risk and compliance involved
- The budget and resources available
- The quality and reputation of the service provider
Conclusion
Accounting is a vital aspect of any business in the UAE, as it helps to measure and report its financial performance and position. Accounting also helps ensure compliance with the laws and regulations governing business activities and transactions. In this article, we have provided a comprehensive guide for businesses on how to comply with the accounting laws in UAE, covering the topics of accounting standards, requirements, obligations, practices and services. We hope this article has helped you understand UAE accounting laws better and apply them in your business effectively. You can contact us anytime if you need further assistance or guidance on accounting in UAE. We are a professional accounting firm that offers a range of accounting services in UAE, such as bookkeeping, auditing, VAT consultancy, tax agent services, CFO services and more. We have a team of qualified and experienced accountants who can help you with your accounting needs and challenges. We are committed to providing high-quality and reliable accounting services in UAE at affordable prices. Contact us today, and let us help you with your accounting in UAE.
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