UAE Corporate Tax Update: New Requirements for Audited Financial Statements Effective 2025

The Ministry of Finance through its new Ministerial Decision introduced essential auditing requirements for specific taxable entities within the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) that will become effective starting 1 January 2025.

Key Highlights of the Ministerial Decision

1. Definitions and Legal Reference

According to the recently released Decision the terms lacking definitions in the Corporate Tax Law receive their meaning from the original law unless additional details appear elsewhere.

2. Mandatory Preparation and Maintenance of Audited Financial Statements

Article 54 Clause (2) of the Corporate Tax Law determines the requirement for audited financial statements from specific entities.

a) Taxable Persons (Non-Tax Group):

The scope of VAT taxation includes all entities with earnings above AED 50 million in the relevant tax period yet not within a tax group structure.

b) Qualifying Free Zone Persons:

All entities operating under this classification, regardless of revenue thresholds.

c) Tax Groups:

Entity classification under this category requires entities to present special purpose financial statements for audit in compliance with Federal Tax Authority (FTA) procedures.

d) Special Requirements for Designated Zones:

All distribution activities of goods or materials in or out of a Designated Zone (defined under Ministerial Decision No. 265 of 2023) require Qualifying Free Zone Persons to follow the procedures established by the Authority.

e) Non-Resident Persons:

Revenues produced by Permanent Establishments and nexuses that operate inside UAE are what will determine whether entities qualify for the AED 50 million threshold.

3. Repeal of Previous Decision

Ministerial Decision No. 82 of 2023 expires under this new legislation yet still operates for periods which started before 1 January 2025.

4. Applicability

Any business should apply this requirement when filing tax returns during periods beginning on or after 1 January 2025.

5. Effective Date

The Decision begins its effectiveness on the date of issuance and the Ministry has officially distributed it to the public.

What Does This Mean for Businesses?

Financial transparency stands as the primary focus of this update which demonstrates UAE commitment to worldwide tax standards. Organizations must examine all their financial reporting operations to decide if they will be subjected to new audited financial statement requirements.

Action Points for Businesses:

• Evaluate your revenue: Check if your annual revenue exceeds AED 50 million.
• Determine your classification: Identify if you are a Qualifying Free Zone Person or part of a Tax Group.
• Prepare for audit: Establish robust accounting systems and consider early engagement with certified auditors.
• Stay updated: Monitor further guidance from the Federal Tax Authority on the format and procedures for special purpose financial statements.

To get professional assistance on UAE Corporate Tax compliance and financial auditing businesses should seek advice from certified tax consultants or legal advisors.