.svg)
Get in Touch
We would love to hear from you!
Recent posts
VAT Implementation in UAE : Top 3 FAQs
Kreston Menon
Yes, but this will depend mostly on the individual’s lifestyle and spending habit. While the cost of living is expected to go up a notch, don’t panic, it will be a very minimal adjustment as there will be limited taxable items in the market. In fact, Gulf Cooperation Council (GCC) states already agreed to exempt about 94 food products. Similarly, medical and educational bills are not affected unless there’s a hike in prices.
Read More
Auditors In UAE : 3 Factors for Considering
Kreston Menon
Deciding which auditor to hire can be a bit tedious as it involves your company’s financial stability. Ideally, the relationship between a company and the auditor should be long and beneficial for both parties. Since the stakes are considerably high in choosing the right auditors from the best audit firms in UAE, we have shared the key factors that a company needs to consider in order to choose the ideal auditor that will match its goals.
Transparent Communication
The key to any long term relationship between businesses and its auditor is to build a strong foundation of trust. The auditing firm should be transparent in the process it employs and the quality control procedures it follows. Businesses should know that the work is accurate and complete, thus an open communication is likewise essential. Audit firms that practice openness is ideal as companies can expect that even the smallest inconsistency in the audit is communicated immediately before it escalates into a larger issue. Moreover, an enviable auditing firm should ensure that the company understood the auditing process and freely answer all their questions about it.
Industry Experience
A business’ financial statement should be handled by experts with experience similar to the organization’s field or industry. Companies should do a thorough research about the background experience of the auditors in UAE. Don’t just rely on their website’s portfolio and client’s page; it’s helpful to also look into their review pages on Google and other company review platforms. Another way is to ask them for a list of references and call at least five references. Furthermore, assess on how they keep up with the evolving trend in the accounting world. This way, companies will have an idea how the auditor can prepare and face the future changes that may occur. Likewise, the auditing firm employs a meticulous review of the client’s credentials before pursuing the deal. This way, the firm maintains their standards in taking only the credible clients.
Audit Fee internal-audit-services
There’s an old saying “you get what you pay for. ’’ Basically, the quality of services will conform on the cost. It’s a little doubtful if the auditing fee is lower than usual. This will lead a company to question whether the auditor is amateur and inexperienced, thus the low fee. Essentially, the fee shouldn’t matter much but still considerable to the process. Since both parties should benefit from each other, it’s expected that the audit fee is competitive and rational.
The financial statement establishes the financial condition of the company. It supports the efforts of the business development strategy of the company, whether their plan to risk investing in another venture is profitable or not. Auditing firms are expected to determine the downfall and effects of these efforts by doing a methodical audit process. Small discrepancies in the audit could cause a lot for the business, thus hiring the ideal auditor that fits your company needs is vital.
Read More
UNCTAD Ranked the UAE as the 12th Top Destination for FDIs
Kreston Menon
Recently, The World Investment Report 2017 by United Nations’ Conference on Trade and Development (UNCTAD) shows that the UAE is the 12th most earned foreign direct investment (FDI) with an impressive inflow of $9 billion in 2016. The report also reveals that other countries, such as Bahrain, Lebanon and Saudi Arabia surpassed the rest in the region. Unfortunately, it’s a whole different story for the investment market globally as its FDI is expected to decrease by 2% or $1.75 trillion, according to UNCTAD.
Furthermore, the Minister of Economy, Sultan Bin Saeed Al Mansouri, predicts that FDIs over the coming five years will surge following the launch of mega projects for renewal energy and retail industries. He also noted that growing FDIs to the UAE advanced from $109 billion by the end of 2015, to $117.9 billion by the end of 2016. With which an impressive 8.2% came from the escalating investments in transformational, aviation and tourism industries. “The country is developing well thought-out strategies in line with the National Agenda of the UAE Vision 2021 by aligning efforts and ensuring synergies across all sectors at the federal and local levels in alignment with the directives of our wise leadership,” the minister added.
Given such a significant data, the UAE ranked the second top recipient across west Asia with a 32.3% of total FDIs coming to the region last year 2016. This is a good news for the business Setup UAE and foreign investors as we can only expect to see further growth for the coming years.
Read More
VAT – How Prepared is Your Business?
Kreston Menon
VAT is about to mark the beginning of a new era for the Gulf Cooperation Council (GCC) countries by bringing in a fundamental shift in the countries revenue collection. As the GCC member states are to adopt Value Added Tax (VAT) on 1 January 2018, companies are on a limited timeline to prepare for the first phase of VAT implementation. In this point of time, regional businesses are scrambling to determine exactly what they can do now to prepare for VAT. In the countdown to VAT implementation, companies should consider taking some simple steps now to keep abreast of their obligations, which are discussed over here.
VAT is not just a finance project! So, plan ahead…
VAT in UAE affects almost all the transactions and touches every aspect of the organization. It’ll possibly affect IT systems, finance, human resources, legal teams and even inter-organization transactions. So, prepare a detailed project plan and secure the necessary internal and external resources. Also, ensure the stakeholders in the business are well-informed on the same.
Carry out impact assessment
This is a key step to set the foundation for the VAT implementation. Businesses need to carry out an impact assessment to understand VAT and its commercial effects, prioritize issues and prepare in the best possible way for the implementation. Impact assessment would include assessing changes required to the ERP systems, product pricing, ongoing and long term contracts, supply chain, working capital etc.
Keep an eye on existing contracts and terms of business
Perform due diligence on your existing contracts. Continuous contracts which may be ongoing even after 1 January 2018 and also company’s standard long term contracts need to be analyzed if you need to consider making an amendment to any provisions in these contracts, and/or to any standard terms of your business.
Consider M&A / JV transactions
Due consideration should be given as to monitor if any relevant agreements now include specific warranties, obligations, and indemnities, in connection with VAT.
Read More
M&A Transactions in Global E-Commerce Sector: Q1-2017
Kreston Menon
The global M&A transactions in the first quarter of 2017 in the e-commerce sector, has crossed $1 billion with top e-commerce and brick & mortar players such as Amazon, Alibaba and Walmart acquiring regional and niche e-commerce startups.
Description of Deal Buyer Target Value (US$ million)
Amazon buys Dubai-based Souq.Com Amazon.com Souq.Com Not disclosed
Walmart buys fashion retailer ModCloth Walmart ModCloth Not disclosed
Alibaba, SAIF invests in Paytm E-Commerce Alibaba Paytm E-Commerce 200
Ebates acquires ShopStyle from PopSugar Ebates PopSugar Not disclosed
Walmart acquires Moosejaw Walmart Moosejaw 51
Coty acquires stake in Younique Coty Younique 600
Walmart acquires online retailer ShoeBuy Jet.com Shoebuy.com 70
Table 1: e-commerce acquisitions in Q1-2017
In the first quarter of 2017, Walmart continued to battle against its e-commerce rival Amazon through a series of acquisitions including Shoe Buy, Moose jaw and Mod Cloth. The retail giant reported a solid finish to fiscal year 2017, with total revenues of about $497 billion, and an increase of 3.1%, compared to fiscal year 2016. Notably, the individual acquisitions of Walmart in Q1-2017 are much lower than the $3.3 billion it paid to acquire Jet.com in 2016.
Walmart kicked off the year 2017 with the acquisition of an online shoe retailer ShoeBuy.com, throughWalmart’s subsidiary Jet.com, for $70 million from IAC, thereby strengthening its online footwear business. ShoeBuyretails footwear, clothing and accessories for women, men and kids and carries more than 800 brands. The acquisition of ShoeBuy underlines Walmart’s continued push against Amazon, the owner of online shoe store Zappos, which was acquired by Amazon in the year 2009 for about $850 million. While ShoeBuy isn’t nearly as large as Zappos (considering the revenue), it still gives Wal-Mart a foot in the door to more robust clothing sales.
Apparel is the largest online sales category in the U.S. While Wal-Mart sells a good amount of clothing in its brick-and-mortar stores, it doesn’t crack the Amazon’s online apparel retail.Thus, in order to penetrate more into the vast apparel market, further acquisitionswere made by Wal-Mart. In Feb-2017, Wal-Mart acquired Michigan-based online outdoor clothing and gear retailer Moosejaw for $51 million in cash. The acquisition of Moosejaw has improved Wal-Mart’s competitive standing in the U.S. e-commerce space against its rivals.Teaming with Moosejaw is expected to allow Walmart to sell a complete assortment of apparel, including brands like Patagonia, The North Face, Marmot, and others.
In order to accomplish its goal of catching up with Amazon,Walmart has acquired the assets and operations of online apparel retailer ModCloth for an undisclosed sum, in Mar-2017. ModCloth offers clothing and accessory items, including independent designers, national brands and ModCloth-designed private label apparel. It’s very clear that the massive retailer’s M&A tactics have been very much focused on helping it beef up its e-commerce sales by expanding its online product portfolio and customer base.
Moving on to the fashion and beauty space, the New York-based beauty products maker Coty has acquired 60% stake in privately held online cosmetics retailer Younique for approximately $600 million in cash. Younique and Coty expect to combine Younique’s high growth e-commerce platform with Coty’s extensive manufacturing and supply chain capabilities to accelerate the product offering and geographical expansion of Younique. Younique actively makes use of the social media to sell its cosmetics through individuals, known as ‘presenters’.Younique’s sibling founders, Derek Maxfield and Melanie Huscroft, retain a 40% stake in the online cosmetics retailer, which they will continue to run as a separate business within Coty’s consumer beauty division. The acquisition of Younique by Coty was after it not doing any acquisitions since 2015, when Coty had paid $12.5 billion to acquire Proctor & Gamble’s specialty beauty business.
India’s fast growing e-commerce space, which has been witnessing battle between Flipkart and Amazon, has also seen Alibaba taking more interest to have its presence felt, in Q1-2017. The Chinese e-commerce major along with investment firm SAIF Partners has invested about $200 million in India-based Paytm’s online marketplace. Alibaba’s Singapore unit invested $177 million for about 36% stake and SAIF invested $23 million for 4.66% stake in Paytm E-Commerce.
Also Read: M&A Transaction in Retail and Consumer Sector(Between 1st-july to 30th-Sep,2016)
U.S.-based e-commerce leader Amazon which has been in India for past five years trying to displace India-based e-commerce unicorn Flipkart, has reached an agreement to buy Dubai-based internet retailer Souq.com, in Mar-2017. The transaction details were not disclosed by Amazon, though Reuters and other news agencies expect the deal value to be in the range of $600 to $750 million, much lower than the $1 billion valuation that Souq had in earlier rounds of funding in which it raised $275million from investors including Standard Chartered Bank. Souq.com sells consumer electronics, fashion, household items and other goods, claims to be the largest e-commerce site in the GCC. For Amazon, acquiring Souq.com provides a ready platform to expand quickly in the region with large, young and tech-savvy population.
In Feb-2017, Ebates which connects shoppers and retailers through digital content and provides cash back shopping, has acquired ShopStyle from PopSugar. ShopStyle is a fashion discovery and search platform that partners with brands, retailers, stylists and top bloggers to bring exclusive content and unique style perspectives. Ebates strengthens its position in product discovery space and enhances expertise in fashion vertical through the acquisition.
The competition among the major e-commerce players seems to be neck-to-neck in the Q1-2017. While Walmart tried to catch up with rival Amazon, Amazon’s fight against Flipkart was intensified in India. However, Chinese e-commerce heavyweight Alibaba was getting down having its presence felt in the promising e-commerce space India. Coty also strived to become a global industry leader by being aclear challenger in the fashion and beauty domain. We can expect more interesting acquisitions by established brick & mortar retail in the e-commerce space in the next three quarters of 2017.
Read More
#BeBoldforChanges – International Women’s Day
Kreston Menon
On March 8th we celebrate International Women’s Day. It’s a celebration of the social, economic, cultural and political achievements of women. The day also marks a call to action for fast-tracking gender equality – and this is according to the organization that actually conducts the event across the world. There have been many women who have broken barriers and dared to walk where others did not, or who espoused women’s causes passionately – like Florence Nightingale, Emilia Earhart, Billie Jean King, Diana Princess of Wales, Marie Stopes, Marie curie, Helena Rubenstein, George Sand, Emmeline Pankhurst, Indira Gandhi – to name but a handful .Today we will take inspiration from some of the highest achieving women in recent times, and hope, that more girls and young women are spurred to great heights. The theme for this year’s campaign, is Be Bold For Change.
Sunita Williams: This US Navy officer and astronaut holds the record for most total spacewalks by a woman (7) and the most spacewalk time for a woman (50 hours, 40 minutes). She spent several months at the International Space Station, travelling there on the Discovery Shuttle first, in December 2006 on space expeditions no 14 and 15. She became the first human being to run a marathon in Space – the Boston Marathon to be specific. A trend setter, she has truly reached into the sky and touched the stars.
Aung – San SuuKyi This Nobel laureate from Myanmar has been a relentless champion of democracy and peace in her country, which has seen years of military rule and suppressed freedom for common citizens. She remained in exile and then under house arrest for 15 years, but never gave up the fight for her people to have a more normal life. Her courage in the face of personal tragedies and discomfort is highly inspirational – yes, a woman can lead a nation against dictatorship.
Christine Amanpour: The Chief Consultant of CNN International is a daring investigative journalist and TV host who minces no words in her reporting. She fled her native country Iran as a little girl, and lives in England now. She reported on the Bosnian war, and has interviewed several world leaders, and hosts many talk shows, some of them controversial because of the topics. For her bold and courageous reporting, she has been the recipient of several honorary doctorates and awards for excellence in journalism.
Indira Nooyi : Smart, dynamic and electric; this is how most people would describe the current Chairperson and CEO of Pepsico. She has been ranked in the list of the World’s most Powerful Women for several years consecutively. She broke many barriers to head one of the world’s biggest food and beverage businesses – a seat considered to be male preserve. After joining the company in 1994, she was made the CFO in 2001 and then President and CEO in 2006. She has been at the helm of the company’s global strategy for over a decade, and was instrumental in several major happenings like takeover of Tropicana, divestiture into Tricon, merger with Quaker Oats and so on. Certainly a personality to be emulated!
Christine Lagarde : She is the current (and the first woman) head of the International Monetary Fund, a position she has held since July 2011. She was previously appointed as Minister for various departments in the French Government including Economic Affairs, Finance and Employment, Agriculture and Fishing,and Trade. A successful anti-trust and labour lawyer, Lagarde was the first female chairperson of the international law firm Baker &McKenzie between 1999 and 2004. She was ranked the best Minister of Finance in the Eurozone on 16 November 2009 by the Financial Times.
J.K. Rowling : Who doesn’t love Harry Potter? But not many know that the author, J. K Rowling, was on the verge of poverty when she wrote the first book. Harry Potter and the Philosopher’s Stone – a book rejected by 12 publishers before it was finally published. And the rest is history. She was going through the roughest patch in her life: she had just got divorced, her mother had passed away, and she had a little child to raise. But she did not stop believing in herself. She pulled herself out of the depths of despair to become an international sensation. From school kids to grandmas, from the UK to India and South America, Harry Potter gained immense popularity, making her one of the richest women in the UK.
This is hardly a comprehensive list – there are so many. I have tried to give examples of bold, successful women from varying professions, to highlight the fact that virtually nothing is impossible for us women today. When we see so many exemplary women who have already made a path for the rest of us, can we not follow in their footsteps – if we cannot carve new paths ourselves?
Go out there, and make your mark on the world. Be Bold. Be decisive. Don’t wait for the world to change – make the change yourself. A Very Happy International Women’s Day to my sisters all over the world!
Read More
Combating Trade Based Money Laundering
Kreston Menon
The FATF has defined “Money Laundering” as the processing of criminal proceeds to disguise their origin in order to legitimize the illegally-gained proceeds; and “Trade Based Money Laundering” (TBML)as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.
In recent years, global and regional regulators have implemented stringent measures pertaining to Anti-Money Laundering & Terrorist Financing, which has made it difficult to launder money through the traditional channels. Due to the same, the Money Launderers are using more sophisticated methods like TBML especially since it is very difficult to set red flags for detection of illicit funds. This can be supported by a report from International Narcotics Control Strategy Report (INCSR) of 2003 which states that hundreds of billions of dollars are laundered annually by way of Trade-Based Money Laundering (TBML).
How does TBML works
FATF, in its report on TBML in 2006, states that the international trade system is subject to a wide range of risks and vulnerabilities that can be exploited by criminal organizations and terrorist financiers. Some of the examples for carrying out TBML includes misrepresentation of price, quantity or quality of imports or exports or through fictitious trade activities or front companies etc. It also stated that the various techniques used for executing TBML are complex in nature and can be frequently used in parallel with other money laundering techniques. Some of the basic techniques have been highlighted below:
- Over- and under-invoicing of goods and services;
- Multiple invoicing of goods and services;
- Over- and under-shipments of goods and services; and
- Falsely described goods and services.
Steps to identify Trade Based Money Laundering
As highlighted above, TBML is one of the most supplicated tools which is difficult to identify due to complexity and possible layering of the transaction, hence it is important to highlight some of the key steps for identifying TBML related transactions, including but not limited to:
- Screen the parties – Banks and Finance Houses should check on true identity and beneficial ownership of customers, customer’s customer, suppliers, agents counter partiesrties.
- Review bill of lading, invoices, certificate of origin, packing list and such other documents to check on any mismatch in details.
- Examine cargo movements by checking bill of lading details in Shipping company tracker or raising for International Maritime Bureau reports.
- Compare export information with tax declarations to detect discrepancies.
- Pay particular attention to trade transactions that display known red flag indicators of TBML activity.
- Sanctions check on parties to the transaction.
- Conduct EDD for High Risk Clients at various intervals.
- Take appropriate follow-up action when anomalies and discrepancies in trade and financial transactions are identified.
TBML Process – Case in Point
Case study from APG Typology Report on Trade Based Money Laundering – 20th July 2012
ROUND TRIPPING OF FUND TRANSFERRED THROUGH HAWALA BY RECEIVING THE FUND BACK AS EXPORT EARNINGS.
Red flags
- Advance received for export without justifiable reason
- Diversion from existing line of business.
- Sudden increase in volume by new exporter.
- Export of goods without any corresponding purchase of raw materials or finished goods.
- Acceptance of trade related documents by Bank, which are not duly authenticated by export regulatory agencies.
Integrated Approach for Combating TBML
For combating the risk of TBML, we propose the FIs/Banks to focus on the following three area of priorities
Policy and Control Framework
As part of our integrated approach, the first step is to develop a robust risk and control framework for identification and monitoring of TBML related issued. Banks/FIs should focus on developing/updating the following areas to strengthen its policies against TBML:
Master Data Base
The second step of our solution focuses on creating an internal Master Data Base for all the clients based on Rule/Client/Hybrid approach. This process enables the Bank/FIs to facilitate quick turnaround on review and trade execution. The importance of this approach is that it enables the Banks to maintain the transaction history of the client, which can enable them to enhance the profiling of the customers at the time of renewal and also focuses on the trend analysis of the customer’s transaction.
Governance & Escalation
The last step entails to put governance and escalation matrix in place for ensuring compliance with the industry norms, regulatory requirements and internal policy. Periodic review of the process ensures that the control framework implemented is effective. As part of the third step, the key focus areas include:
- Map the Key requirements of the product requirements as per Industry norms, regulatory requirements and internal policies of the Bank/FIs
- Identify the key responsibilities of stakeholders within each of these process and bring transparency and accountability
- Formulate the approval authority matrix including limit setting
- Implement an exception, variances reporting including SAR to compliance team of the Bank/FIs
- Periodically assess the adequacy of the controls implemented
There are other controls like Monitoring Dual Usage Goods and Transaction Screening processes, which can be implemented at any stage during the review process.
Also Read : Trade Financing GAP for Small-Mid Enterprises
Conclusion
FATF stated that “Any strategy to prevent and combat TBML needs to be based on dismantling TBMLstructures, while allowing genuine trade to occur unfettered”. In this regards, we encourage organization to take a holistic view of setting up policy & framework while aligning the same with the existing CDD/ EDD process for client onboarding/ renewal. The focus for Banks/Fis should be to enhance the robustness of its control framework and monitor the red flags on an ongoing basis. This approach also enables the bank to enhance the profiling of the customers and ensure a robust approach is adopted for combating TBML.
[Tweet “Combating #Trade Based #Money #Laundering”]
Read More
FDI LAW & CABINET RESOLUTIONS (CR) Commonly Asked Questions
Kreston Menon
This booklet is a compilation of a series of communique aimed to update you on the new FDI Law Update. We encapsulated the provisions of the Law and resolutions in the flyers to give insights on how these changes will cement UAE’s position as the most preferred investment destination in the region. We have compiled some of the major queries from our clients and contacts and attempt here to clarify them.
QUERY
Are the provisions of the new Law update applicable for trading entities?
The positive list released as per the CR does not include trading entities for enhanced foreign ownership. However, Retail Trade (non-specialized stores) with an investment of AED 100 million is permitted.
QUERY
What is the minimum amount of physical investment that has to be evidenced immediately for getting approval for a FDI Company?
As per the guidelines issued by Dubai FDI, 20% of the proposed investment must be evidenced in the form of physical capital.
QUERY
Currently most of the professional/consultancy firms are registered as per the provisions of UAE Civil Code and with unlimited liability on the investors. Does the Cabinet Resolution provide a procedure for converting the civil partnership firm to a Limited Liability Company or PSC to be eligible as a FDI Company?
As per the guidelines on FDI issued by the Ministry of Economy, if the legal form of the existing entity is different from the form specified for the FDI Companies, the change of the legal status to any legal form specified for FDI Companies shall be processed according to the procedures provided for in the UAE Commercial Companies Law -2015.
QUERY
Is the Positive List published as per the CR conclusive?
Foreign Investor may still submit to FDI Committee or the Competent Authority, a request for approval to license a project not listed in the Positive List.
QUERY
Are FDI Companies with agricultural or manufacturing activity allowed freehold ownership of property and land?
As per Article 9 of the FDI Law, the right to benefit from any real estate allocated to the Foreign Direct Investment project may not be cancelled, suspended, or restricted except in the event of a violation of the license conditions. Thus, it ensures non-cancellation, non-cessation or limitation of usufruct right of properties allocated for the FDI Project
QUERY
Does ‘pharmacy’ include the category ‘other human health activities’?
Other human health category includes laboratories, diagnostic and therapeutic centers and the minimum investment requirement is AED 70 million. However, pharmacy has not been included in the list. As per Article 16 of the FDI Law, the activity of Medical retail such as private pharmacies is on the Negative List.
QUERY
Are construction of buildings and civil contracting eligible?
Permitted only for large-scale infrastructure projects like airports, roads, sports facilities and projects worth more than AED 450 Million
QUERY
What is the percentage of Emiratization applicable for FDI Company?
Membership in ‘Tawteen Partners Club' of the Ministry of Human Resources & Emiratization is mandatory for an FDI Company. More clarity is awaited on the number of UAE Nationals to be employed by FDI Companies.
QUERY
Are the relevant provisions of the Federal Law No: 2 of 2015 on Commercial Companies amended to adjust with the provisions of the Federal Law No. 19 of 2018 on Foreign Direct Investments?
The legal form of the existing company shall be one of the forms specified for FDI Comp
Read More
Preparing for Corporate Tax Audits: What Documents & Processes Businesses Should Have
Kreston Menon
Corporate tax audit UAE has already become a central part of compliance in the UAE. With the new tax regime now in place, businesses must be ready to show regulators that their financial records are accurate, complete, and in line with local rules. The thing is, preparation is not just about collecting papers at the last minute. It is, and should be about putting the right processes in place long before an inspection happens. This blog, ‘Preparing for Corporate Tax Audits: What Documents & Processes Businesses Should Have’ explains what you need to know, from the documents authorities may ask for, to the practical steps you can take to make sure your company is always audit-ready.
Table of Contents
- Why Corporate Tax Audits are Significant
- Key Triggers for an Audit
- Documents Required for Corporate Tax Audit
- How to Prepare for Tax Audit UAE
- Corporate Tax Audit Process UAE
- Audit Documentation Requirements UAE
- Staying Audit-Ready at All Times
- How to Respond to an Audit
- Practical Benefits of Audit Readiness
- Common Mistakes to Avoid
- Stay Ahead with Expert Guidance
Why Corporate Tax Audits are Significant
Tax audits are meant to confirm whether a business has reported income, expenses, and tax obligations correctly. In simple words, it is about proving that your company followed the law. In the UAE corporate tax audit, regulators will check if your reported numbers reflect the real financial situation of the business. For companies, the implications are serious. A well-prepared audit builds credibility with authorities and avoids penalties. A poorly prepared one can cause delays, disputes, or even fines.
Key Triggers for an Audit
Not every company is selected for review, but some conditions raise the likelihood of it happening. Authorities may initiate a corporate tax audit i Dubai or other Emirates if they notice:
Inconsistent reporting
When the income you declare does not match the expenses or the tax you paid, it signals irregularities. Even small mismatches repeated over time can raise suspicion and prompt a closer look.
Unusual claims
Businesses that regularly report high deductions, repeated losses, or sudden declines in profitability may be flagged. Authorities want to confirm whether these claims are genuine or an attempt to reduce tax obligations.
Related-party transactions
Transactions with group companies, subsidiaries, or international affiliates often attract attention. These dealings must be priced at market value, and any deviation could lead to scrutiny of transfer pricing arrangements.
Industry risks
Some sectors are seen as higher risk than others due to the nature of their operations, cash flow patterns, or past history of non-compliance. Companies in such industries may face audits more often than others.
Random selection
Sometimes businesses are chosen simply as part of routine monitoring, without any warning signs in their filings. This makes sure the system remains fair and keeps all companies aware that audits can happen at any time.
This clearly shows that any business can be audited, even if it thinks everything looks fine. That is why preparation is non-negotiable.
Documents Required for Corporate Tax Audit
When an audit begins, the first step is to provide documents that back up your tax filings. These usually include:
- Financial statements: Profit and loss statements along with balance sheets, and cash flow reports.
- General ledgers: Detailed records of accounts to confirm entries.
- Invoices and receipts: Evidence of sales, purchases, and other transactions.
- Bank statements: Reconciliation with recorded income and expenses.
- Payroll records: Salaries, benefits, and related tax entries.
- Contracts: Agreements with suppliers, clients, or partners that affect taxable income.
- Supporting schedules: Calculations for depreciation, provisions, or allowances.
In addition, audited financial statements requirement UAE CT regulations makes it necessary for certain businesses to maintain reviewed or audited accounts to support tax filings. This is not just a formality but a requirement that can be checked at any stage.
How to Prepare for Tax Audit UAE
Preparation is less about reacting and more about creating systems. Here are the steps businesses should consider:
1. Organize records consistently
Keep all invoices, receipts, and contracts in a structured way. Digital storage with proper tagging works better than scattered paper files.
2. Close accounts on time
Late closures create gaps and increase the chances of mismatches. Stick to a monthly and yearly closing schedule.
3. Review financial statements regularly
Check whether reports align with actual business activity. This helps catch mistakes before an auditor does.
4. Train internal teams
Staff handling accounts and compliance should know the rules around corporate tax audit UAE requirement so they can maintain records properly.
5. Work with external advisors
Auditors and tax consultants bring expertise that helps avoid oversights. Regular external reviews reduce risks during an official inspection.
Corporate Tax Audit Process UAE
When regulators open an audit, the process often follows a structured sequence:
1. Notification
The company first receives an official notice from the authorities. This document outlines the purpose of the audit, the period under review, and the timelines within which the company must respond.
2. Document submission
After notification, businesses are required to submit all requested records within a specific deadline. Missing these timelines can raise further questions and may complicate the process.
3. Examination
Once documents are received, auditors carefully review the data provided. They compare it against filed tax returns, financial statements, and supporting evidence to spot any inconsistencies.
4. Queries
If auditors find unclear entries or gaps, they will ask the business for clarification. At this stage, companies may also be asked to submit additional documents that support the figures in their returns.
5. Preliminary findings
Based on the examination, the authorities may issue a draft report that highlights potential compliance issues. This is not the final outcome but an opportunity for the company to see where regulators believe adjustments may be needed.
6. Response period
The business is then given time to reply to the findings. This may involve providing explanations, additional documents, or legal interpretations to justify the reported numbers before the final decision is made.
7. Final report
Once all responses are considered, an audit report for corporate tax in UAE is issued. This document confirms whether compliance was achieved or if adjustments are needed.
Audit Documentation Requirements UAE
It is not enough to just collect financial statements. Authorities also want supporting documents that prove transactions were genuine. This can include:
- Sales and purchase orders.
- Supplier and customer agreements.
- Transfer pricing documentation for UAE audit when related parties are involved.
- Proof of inventory movement.
- Loan agreements and repayment schedules.
The more consistent the documentation, the easier it is to show compliance.
Staying Audit-Ready at All Times
Since audits may come with little notice, the best strategy is to stay prepared year-round. That means:
Update records daily
Businesses should maintain accurate and up-to-date books on a day-to-day basis instead of waiting until the end of the year. This habit makes it easier to provide supporting evidence quickly and avoids last-minute confusion when an audit begins.
Use accounting software
Digital tools help reduce calculation mistakes and ensure consistency in record-keeping. Automating reconciliations, expense tracking, and reporting also saves time and creates a reliable audit trail.
Conduct quarterly checks
Carrying out regular internal reviews allows companies to catch discrepancies before regulators do. These checks provide management with early warnings and an opportunity to correct mistakes in real time.
Review rules for new activities
Whenever a company adds new business activities, creates subsidiaries, or enters into cross-border deals, tax compliance should be re-evaluated. Reviewing rules at these points ensures that the business stays aligned with legal requirements at all times.
This way, an audit becomes a routine check rather than a stressful event.
How to Respond to an Audit
Even with preparation, being audited can feel demanding. The key is to handle the process calmly and systematically.
1. Acknowledge the notice quickly
Respond to the audit notice as soon as you receive it, confirm that you will cooperate, and begin preparing the requested information without delay to set the right tone with the authorities.
2. Assign a point of contact
Appoint one responsible person to handle all communication so that information flows smoothly, and the company avoids giving mixed or inconsistent responses.
3. Provide complete responses
When submitting records, ensure that documents are full, accurate, and organized, since missing or partial files will only raise additional queries and slow down the process.
4. Keep explanations clear
If auditors ask for clarification, respond with straightforward explanations supported by records, avoiding overly technical or confusing justifications that can create more doubts.
5. Engage professionals when needed
Bring in tax advisors or legal experts if the audit involves technical matters, as their knowledge can help resolve complex issues efficiently and prevent compliance risks.
Handling an audit this way not only reduces risk but also shows regulators that the business takes compliance seriously.
Practical Benefits of Audit Readiness
Being prepared is not just about avoiding penalties. It creates tangible advantages too, such as:
- Better control over finances: Regular reviews of accounts and records improve accuracy, help spot errors early, and give management a clearer picture of the company’s actual financial position.
- Smoother business operations: When documentation is organized and updated, an official audit can be handled with minimal disruption, allowing day-to-day operations to continue without unnecessary delays.
- Improved investor confidence: Clear and reliable records send a strong signal to current and potential investors, showing that the company is financially disciplined and committed to transparency.
- Regulatory trust: Authorities are more likely to view the business as responsible and cooperative when records are well maintained, which can make future compliance interactions much smoother.
Common Mistakes to Avoid
Some businesses trip up because they underestimate the effort required. Typical errors include:
1. Keeping incomplete or inconsistent records
When financial data is scattered or missing, it becomes difficult to prove the accuracy of tax filings, and auditors will quickly flag these gaps as a concern.
2. Ignoring minor discrepancies
Even small mismatches between reported figures and supporting documents can raise questions, as auditors often view them as signs of larger underlying issues.
3. Relying too much on manual entries
Manual bookkeeping without adequate checks increases the chance of errors, and these mistakes, even if unintentional, can create compliance risks during an audit.
4. Waiting until an audit notice arrives before organizing files
Trying to prepare documents only after receiving a notice usually leads to rushed work, overlooked records, and added stress for both management and staff.
5. Not updating transfer pricing policies
When rules change but related-party pricing policies remain outdated, it leaves the company exposed to compliance failures that could have been avoided with timely adjustments.
To sum up, corporate tax audit UAE is a key part of compliance, and, obviously, preparation is essential. Maintaining organized financial records, updating accounts regularly, and keeping proper documentation, including transfer pricing, helps businesses stay audit-ready. Responding clearly to queries, providing complete evidence, and involving professionals when needed promote a smooth process. Being prepared not just reduces the risk of penalties but also strengthens operational efficiency, builds investor confidence, and earns trust from regulators, turning audits into manageable and routine checks rather than stressful events.
Stay Ahead with Expert Guidance
With Kreston Menon’s experts by your side, you can stay updated in the business scene of Dubai and handle every stage of corporate tax compliance smoothly.
Read More
.jpg)
UAE E-invoicing Update – Administrative Violations and Penalties under e-invoice framework
Kreston Menon
The UAE Ministry of Finance has issued Cabinet Decision No. 106 of 2025, which sets out violations and administrative penalties related to the national e-invoicing system. The decision takes effect the day after its publication in the Official Gazette, making compliance an immediate priority for businesses operating in the UAE.
In simple words, this decision moves e-invoicing from a regulatory requirement to an enforceable obligation, with defined penalties for non-compliance.
This article explains what the decision covers, who it applies to, and most importantly, what businesses need to do now.
What Is Cabinet Decision No. 106 of 2025 About?
Cabinet Decision No. 106 of 2025 defines violations and penalties linked to the UAE e-invoicing system introduced under Federal Decree-Law No. 28 of 2022.
Its purpose is to ensure that businesses:
- Implement the e-invoicing system on time.
- Use approved technical channels.
- Issue and receive invoices correctly.
- Report system issues without delay.
The decision provides legal clarity and sets financial consequences for failures on both the issuing and receiving sides.
Who Does the Decision Apply To?
The decision applies to all entities involved in:
- Issuing electronic invoices.
- Transmitting electronic invoices.
- Receiving electronic invoices.
- Issuing or receiving electronic credit notes.
If a business is subject to Federal Decree-Law No. 28 of 2022, this decision applies to it, regardless of size or industry.
What this really means is that even businesses with limited transaction volumes are not exempt from compliance obligations.
Key Definitions You Should Understand
To avoid confusion, the decision clearly defines important terms used in the e-invoicing framework.
Key definitions include:
Electronic Invoice
A structured digital invoice is issued, transmitted, and received through the UAE e-invoicing system.
Electronic Credit Note
A structured electronic document used to adjust or correct an issued electronic invoice.
Issuer
The entity responsible for issuing the electronic invoice or credit note.
Recipient
The entity that receives the electronic invoice or credit note.
Accredited Service Provider (ASP)
A service provider approved by the Authority to facilitate e-invoicing.
Understanding these roles is essential because penalties are assigned based on whether a business acts as an Issuer or a Recipient.
What Are the Penalties for Issuers?
Issuers carry primary responsibility for issuing and transmitting invoices correctly and on time. The decision lists specific violations with defined penalties.
Penalties applicable to Issuers include:
- Failure to implement the e-invoicing system or appoint an Accredited Service Provider within the prescribed timeline.
Penalty: AED 5,000 for each month or part of a month of delay.
- Failure to issue and transmit an electronic invoice within the prescribed timeline.
Penalty: AED 100 per invoice, capped at AED 5,000 per calendar month.
- Failure to issue and transmit an electronic credit note within the prescribed timeline.
Penalty: AED 100 per credit note, capped at AED 5,000 per calendar month.
- Failure to notify the Authority of a system failure within the prescribed timeline.
Penalty: AED 1,000 for each day of delay or part thereof.
- Failure to notify the appointed ASP of changes to registered data within the prescribed timeline.
Penalty: AED 1,000 for each day of delay or part thereof.
The structure of these penalties shows a clear focus on ongoing compliance rather than one-time enforcement.
What Are the Penalties for Recipients?
Recipients also have defined responsibilities under the e-invoicing framework. The decision makes it clear that compliance is not limited to invoice issuers.
Penalties applicable to Recipients include:
- Failure to notify the Authority of a system failure within the prescribed timeline
Penalty: AED 1,000 for each day of delay or part thereof
- Failure to notify the appointed ASP of changes to registered data within the prescribed timeline
Penalty: AED 1,000 for each day of delay or part thereof
This confirms that recipients must actively monitor their systems and maintain accurate registration details.
What Should Businesses Do to Avoid Penalties?
To stay compliant under Cabinet Decision No. 106 of 2025, businesses should focus on operational readiness rather than last-minute fixes.
Key steps include:
- Confirming the timely appointment of an Accredited Service Provider
- Ensuring invoicing systems can issue and transmit invoices within the required timelines
- Setting internal alerts for system failures
- Defining clear reporting responsibilities
- Regularly reviewing and updating registered business data
- Training finance and IT teams on compliance procedures
The thing is, most penalties arise not from intent but from weak processes and unclear ownership.
Why This Decision Matters for Long-Term Compliance
This decision signals a shift toward structured enforcement of digital tax and reporting systems in the UAE. E-invoicing is part of a broader framework that includes VAT compliance, data standardisation, and transaction transparency.
Businesses that align early will face fewer disruptions, lower compliance risk, and better audit readiness.
Those who delay may face recurring penalties that accumulate quietly over time.
To sum up, Cabinet Decision No. 106 of 2025 brings clarity, accountability, and enforceable standards to the UAE e-invoicing system. The expectations are now clearly defined, and the penalties are practical and measurable.
For businesses, the priority is simple. Understand your role, fix your processes, and monitor compliance continuously.
Staying ahead of regulatory change requires more than just technical readiness. It requires the right guidance and clear interpretation along with practical implementation. Working with experienced advisors such as Kreston Menon helps businesses deal with evolving compliance requirements with confidence and stay prepared for what comes next.
Read More
