Under the UAE Corporate Tax Law and relevant Free Zone regulations, a Qualifying Free Zone Person (QFZP) is required to prepare annual financial statements audited in accordance with International Financial Reporting Standards (IFRS).
Why is this Important?
Audited financial statements provide transparency and ensure that the company’s financial position and performance are accurately reported. This requirement supports the integrity of tax filings and helps the Federal Tax Authority (FTA) verify compliance with tax obligations, including the calculation of qualifying and non-qualifying income.
Legal Requirements for QFZP:
- The company must engage a licensed external auditor to conduct the audit of its financial statements.
- The audited accounts must be prepared following IFRS, the internationally recognized accounting framework adopted by the UAE, which ensures consistency and comparability of financial information.
- The financial statements should fairly represent the company’s financial performance and position for the relevant financial year.
Implications for QFZP Status:
Compliance with the audited financial statements requirement is a mandatory condition to maintain QFZP status.
Failure to submit properly audited accounts or submission of inaccurate financial information can lead to:
- Loss of QFZP status and the 0% corporate tax rate benefit.
- Exposure to the standard 9% corporate tax rate on the entire taxable income.
- Potential penalties or additional scrutiny by the FTA.
Best Practices:
- Ensure timely preparation and audit of financial statements within deadlines specified by the Free Zone authority and the FTA.
- The audited financial statements and the corporate tax return must be filed with the Federal Tax Authority (FTA) within 9 months from the end of the financial year.
- Maintain clear and accurate accounting records throughout the year to facilitate smooth audit processes.
- Work with reputable audit firms experienced in Free Zone and UAE Corporate Tax compliance.
Proper financial reporting not only satisfies regulatory obligations but also enhances the company’s credibility with stakeholders and supports long-term sustainable business growth within the UAE.