AUDITING IS AN IMPORTANT PART OF EVERY BUSINESS
Auditing is an important part of every business. It’s proof that a company’s reporting benefits from unrestricted and accurate auditing. Furthermore, it improves reporting openness, trustworthiness, and relevance. Assessments identify all opportunities for evaluating the opinion, ideally through dialogue, and then providing critical suggestions to improve plans and increase operational effectiveness.
Each firm must appoint an auditor, according to article (62) of the DMCC Company Regulations. The auditors must report to the company’s shareholders and prepare an audit report of the annual accounts, according to clause (64) of the DMCC Company Regulations. A punishment is imposed if a corporation fails to produce audited financial accounts within three months of the year’s end.
Under DMCC Company Regulations Article 71.3, within six months after the end of the financial year of the Company, the accounts for that period must be:
(a) Prepared and approved by the Directors;
(b) Examined and reported on by an auditor approved by DMCCA; and
(c) Laid before a General Meeting for discussion and, if thought fit, approved by its Shareholders together with a copy of the auditor’s report.
The AFS and summary sheet needs to be submitted for Company Name considering the following Financial Year Information:
Financial Year Start Date: (01/01/2021)
Financial Year End Date: (31/12/2021)
Final Submission Date: (29/06/2022)
The signed and stamped AFS copies and summary sheet must be uploaded online through the member portal.
Failure to submit the said AFS by this date would be incurred with a sanction on DMCC member portal account, and therefore may not be able to submit any form of request including renewal of license until AFS has been submitted.
As DMCC Approved Auditors, Excellence ensures that DMCC member companies abide all the DMCC Free Zone’s rules and regulations. With our assistance, we guarantee you that the audit for your companies is completed and submitted in compliance with the DMCC rules and regulations by the deadline.
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A key highlight of the clarification is the direct impact it has on transactions and payments made to shareholders, directors, officers, owners, and related parties that are involved with the business. This will include:
- Salaries and bonuses
- Management fees and consultancy payments
- Allowances, reimbursements and benefits
Reinforcing the fact that the deductibility of these payments will not be limited to just where they were incurred, but will also consider if they can be commercially justified. Businesses now would have to demonstrate if the commercial terms linked to the payment are in line with the market value conditions. But the FTA has also further detailed the conditionality that businesses have to meet before the transaction will be considered deductible. The conditions are:
- The expense is for genuine business purposes;
- The amount is commercially justifiable; and
- The value is at market level.
Any excess over market value may be disallowed for Corporate Tax purposes.
Conclusion
For every business to properly function, it has to ensure that it maintains supporting documents for its decisions. The clarification by the FTA about Article 36 of the UAE Corporate Tax Law further puts this point into the spotlight. With respect to the market value, businesses are now expected to maintain documentation such as:
- Employment and service agreements
- Board resolutions
- Benchmarking and salary studies
- Job descriptions and role clarity
- Evidence of services rendered
The clarification becomes more than just a guideline that clarifies the terminologies. It shapes the corporate tax structure with the broader principle of substance over form.