Ministerial Decision No. 82 of 2023: Specifying the categories
Ministerial Decision No. 82 of 2023: Specifying the categories of Taxable Person required to Maintain Audited Financial Statements.
Introduction:
The Ministerial Decision No. 82 of 2023 which is issued by the Ministry of state for Financial Affairs, specifies the categories of taxable person who is required to prepare and maintain the audited financial statements for the purpose of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This decision is aiming to enhance transparency and compliance with the financial reporting, which clarifies that Ministerial Decision No.82 of 2023, is same as the Federal Decree Law No.42 of 2022, which is Corporate Tax Law.
The main focus of the Ministerial Decision No. 82 of 2023 is to understand the categories of a taxable person who must prepare and maintain the audited financial statements. These statements are subject to special consideration by relevant authorities to ensure accuracy and compliance. The following are the categories of taxable person who are obliged to the requirements:
- Taxable person with the revenue exceeding AED 50 million (50,000,000), during the relevant tax period are obliged to prepare and maintain the audited financial statements. This ensures transparency of the entities with significant financial activities.
- The Free zone Persons are also the qualifying entities who are required to prepare and maintain the audited financial statements. The Free Zones entities also meet the same financial reporting standards same as those which are outside the free zones. This ensures uniformity and consistency in the financial reporting of all the entities.
What needs to be done?
- Maintaining Audited Financial Statements is important for Qualifying Free Zone Persons, to obtain benefit of 0% tax on Qualifying Income.
- Qualifying Free Zone Persons (QFZP) are required to maintain audited financial statements irrespective of their gross revenue or net profits.
- It’s Advisable to maintain financial statement, even if audit is not applicable, as Financial Statement will act as a basis for tax return filing.
What can Excellence do to help?
Excellence has a team of dedicated Qualified Chartered Accountants who will prepare and maintain your company’s proper book of accounts,
Provide audited financial statements for your company,
Provide professional financial advisory services suited for your company’s requirements, And ensure timely assistance for any concerns and better coordination with the help of our Client Service Team.
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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.