Company Accounting in Dubai: Legal Obligations, Processes, and Penal Consequences

The Importance of Company Accounting in Dubai

For companies operating in Dubai, maintaining accurate and orderly accounting records is not only a legal obligation but also a critical element for ensuring the company's financial health and sustainability. Correct accounting practices clearly reflect the company's financial situation, boost investor confidence, and protect the company in potential audits.

Legal Accounting Obligations

The accounting obligations that companies in Dubai must comply with may vary depending on the type of company and the region in which they operate. However, the following obligations generally apply:

• Preparation of Financial Statements: Companies are required to prepare financial statements annually, including balance sheets, income statements, cash flow statements, and statements of changes in equity. These statements must comply with International Financial Reporting Standards (IFRS) or relevant free zone regulations.

• Annual Audit: Most companies are required to have their annual financial statements audited by an independent auditor. This audit ensures the accuracy of financial information and legal compliance.

• Tax Returns: Companies must submit their Value Added Tax (VAT) and Corporate Tax returns accurately and on time. VAT returns are typically submitted quarterly, while Corporate Tax returns are submitted annually.

• Record Keeping: Companies must document all financial transactions and regularly update these records. These records must be presented during audits and in accordance with legal requirements.

Accounting Process: Step by Step

1. Establishment of an Accounting System: An accounting system suitable for the company's line of business and size is selected and established.

2. Maintaining Daily Records: All income, expenses, invoices, and bank transactions are recorded daily.

3. Monthly and Annual Reporting: Monthly income-expense statements are prepared; at the end of the year, annual financial statements are organized.

4. Audit Preparation: Annual financial statements are prepared for independent auditing, and the necessary documents are completed.

5. Tax Returns: VAT and Corporate Tax returns are prepared and submitted to the relevant authorities.

Penalties for Non-Compliance

If accounting records are not maintained or are not carried out in accordance with the law in Dubai, companies may face severe penalties:

• Failure to Maintain Records: A penalty of 10,000 AED for the first violation, and up to 20,000 AED for repeated violations may be imposed.

• False Declaration: Penalties starting from 500 AED may arise in case of submission of incorrect or incomplete tax returns.

• Obstruction of Audit: Failure to present the necessary documents or cooperate during an audit may result in a penalty of up to 20,000 AED.

• Failure to Pay Taxes: A delay interest of 14% per annum may be applied on unpaid taxes.

The Process of Retaining Accounting Records

Companies are required to retain all accounting records and related documents for at least 5 years. In some cases (for example, real estate transactions), this period may extend up to 15 years. Proper and secure storage of records ensures the protection of the company during potential audits and legal reviews.

Professional Support and Consulting Services

Given the complexity of accounting processes in Dubai and the diversity of legal requirements, utilizing professional accounting and consulting services provides a significant advantage for companies. These services ensure that the company is fully compliant with laws, effectively manages financial processes, and minimizes potential risks.