The UAE is one of the best places in the world to start a business. The country offers a plethora of benefits to entrepreneurs and business owners. However, setting up a venture in the United Arab Emirates (UAE) also comes with important responsibilities.
One crucial element of running a successful business in the UAE is ensuring compliance with local laws and regulations. This guide will walk you through the essential compliance requirements for companies operating in Dubai and the broader UAE.
Remember that compliance is more than the following rules. It is mostly about protecting your business and its reputation. Non-compliance in the UAE can result in hefty fines, licence suspensions, or even forced closure of your business. Failing to meet compliance requirements can sometimes lead to legal action against company owners or managers.
As the UAE continues to align its business practices with international standards, making compliance your top priority has become more critical than ever. Let’s dive into the key compliance areas to ensure your business remains in good standing with the UAE authorities.
Key Compliance Requirements for UAE Companies
Here are the major compliance requirements in the UAE.
1. Taxation
The UAE has always been known as a tax-free haven. However, in recent years, the country has introduced new tax systems. Knowledge of these new taxation regulations is necessary for all businesses operating in the country.
1.1 Value Added Tax (VAT)
The UAE introduced the VAT on January 1, 2018. Here’s what you need to know about it:
- The standard VAT rate is 5%.
- Businesses must register for VAT if their taxable supplies and imports exceed AED 375,000 at any given point during the operation of the company.
- Voluntary registration is possible for businesses with taxable supplies and imports exceeding AED 187,500 per year.
- Once registered, companies must file VAT returns quarterly.
Both residents and non-residents can obtain a Tax Registration Number (TRN) to register for VAT using the Federal Tax Authority’s e-service portal. Businesses must keep accurate and proper records of all transactions and charge VAT correctly on goods and services. Failure to comply with VAT regulations can result in penalties.
1.2. Corporate Tax
The UAE did not have federal corporate tax on companies until June 1, 2023. The key points to understand about CT are:
- The standard corporate tax rate is 9% for taxable income exceeding AED 375,000.
- A 0% rate applies to turnover up to AED 300,000 to support small businesses and startups.
- All UAE businesses and commercial activities are required to register for Corporate Tax, with some exceptions.
Similar to VAT, businesses must keep detailed financial records to avoid any errors and penalties. Also, it’s important to note that corporate tax registration in UAE is mandatory, even if you are not liable to pay taxes.
Hence, consulting with a tax professional is recommended to ensure you’re registered promptly and to determine if you fall into the category of paying, calculating, and paying the correct amount of corporate tax.
2. Financial Auditing
Routine financial audits are an integral part of compliance requirements in the UAE. Annual external audits of Financial Statements and Report submissions to banks and regulators include:
- Profit and loss account
- Balance sheet
- Trial balance
- Cash flow statement
One key thing to note is that there are slight differences in the requirements based on your business location, i.e., Mainland or Free Zone.
Mainland Companies
If your company is registered in the UAE Mainland:
- Your company’s financial records must be audited annually.
- Submitting audited accounts to the authorities is not required, but you must keep them for future reference.
- Audited accounts are also quite helpful when dealing with banks, investors, or potential business partners.
Free Zone Companies
For businesses in Free Zones:
- Audit requirements are different based on which Free Zone you choose.
- In many Free Zones, you are required to submit annual audited financial accounts as part of the licence renewal process.
- You must consult a business consultant or your specific Free Zone authority to understand their unique requirements.
No matter where your business is located, it is an excellent practice to get your accounts audited regularly. This ensures your financial records are accurate and can help you spot any issues early. You can fix any errors you find to keep your accounts clear and flawless.
3. Economic Substance Regulations (ESR)
The UAE introduced the Economic Substance Regulations in 2019. The main aim of ESR is to ensure that companies carrying out certain activities have a real economic presence in the country. Here’s what you need to know:
Relevant Activities
ESR applies to businesses engaged in the following activities:
- Banking
- Insurance
- Headquarters business
- Holding company business
- Investment fund management
- Distribution and service centre business
- Lease finance
- Shipping
- Intellectual property business
Compliance Requirements
If your business is involved in any of the activities mentioned above:
- You must submit an ESR notification within 6 months of your financial year-end.
- In specific cases, you are also required to submit an ESR report within 12 months of your FYE.
- You must have enough evidence to support the claim that your company has adequate economic substance in the UAE.
Businesses that fail to comply with the Economic Substance Regulations can face significant penalties. Failure to submit a notification or report can result in fines of AED 50,000.
4. Ultimate Beneficial Owner (UBO) Compliance
In the UAE, companies must maintain and submit information about their ultimate beneficial owners. This UBO compliance helps enhance the country’s efforts to promote transparency and combat financial crimes.
Who is a UBO?
A UBO, or Ultimate Beneficial Owner, typically owns or controls over 25% of a company’s shares or voting rights. A UBO has significant influence or control over the company and can appoint or remove the majority of its directors.
Compliance Requirements
- All Mainland and Free Zone companies must maintain a register of their UBOs.
- You must submit this information to the relevant authorities.
- If there is any change in the UBO information, you must report it immediately to the authorities.
Failure to comply with UBO regulations can result in fines and other penalties.
5. Anti-Money Laundering (AML) and Counter-Finance Terrorism (CFT)
The UAE has strict laws and regulations to fight money laundering and counter-terrorist financing. All businesses must be aware of these AML and CFT regulations. However, specific sectors have additional obligations.
High-Risk Sectors
The following sectors are considered high-risk and face additional AML/CFT requirements:
- Corporate service providers
- Real estate brokers and agents
- Independent accountants
- Precious metals and stone dealers
Compliance Requirements
For a business falling into the aforementioned categories, the following AML compliance requirements are mandatory.
- You must register with the goAML website.
- If you find any suspicious activity or transactions, you must report it immediately.
- You must also implement Know Your Customer (KYC) procedures.
- You must also train your staff regularly regarding AML/CFT regulations.
Non-compliance with AML/CFT regulations can result in severe penalties, including hefty fines and potential imprisonment.
Annual Compliance Checklist
In addition to the significant compliance requirements mentioned above, all UAE businesses must keep up with various regulatory updates and renewals.
Here’s a checklist of items you should review annually:
1. Trade License Renewal
Every company must renew the trade licence annually before it expires. However, requirements may differ depending on your location and licence type.
2. Immigration Card Renewal
Every company that sponsors foreign employees must renew the company’s immigration card to continue sponsorship.
3. Labour Card Renewal
Just like the immigration card, labour cards must be renewed every year.
4. Visa Renewal
Most visas must be renewed at regular intervals. Keep track of visa expiration dates for your employees and yourself, and renew them before the expiry date.
5. Custom Code Renewal (for trading companies)
Companies involved in import/export business must renew their custom code regularly.
6. Insurance Policies
Insurance policies must be reviewed and renewed before they expire. Insurance keeps you prepared for any unforeseen accidents or events.
7. Lease Agreements
Usually, office and warehouse leases are commercial and set up for multiple years. Still, it would help if you kept a close eye on them to ensure they’re up to date and renewed before expiry dates.
You must closely monitor these basic annual requirements to avoid disruptions to your business operations. In certain circumstances, you might lose access to your workplace or face penalties.
Penalties for Non-Compliance
Non-compliance is a severe offense in the UAE. The UAE imposes penalties for non-compliance that can be severe. Here’s an overview of potential penalties:
1. VAT Penalties
- Failure to register: AED 10,000
- Late registration: AED 10,000
- Late filing: AED 1,000 for the first offence, increasing for repeat offences
2. ESR Penalties
- Failure to submit notification: AED 20,000
- Failure to submit the report: AED 50,000
- Subsequent violations can lead to penalties of up to AED 400,000
3. UBO Penalties
- First violation: Written warning
- Continued non-compliance: AED 15,000 fine
- Further non-compliance: AED 30,000 fine and potential licence suspension
4. AML/CFT Penalties
- Fines can range from AED 50,000 to AED 5 million
- Severe cases can result in imprisonment for up to 10 years
It is important to note that these are just standard numbers. Actual penalties can vary from case to case, depending on the nature of the violation and circumstances.
Additional Compliance Considerations
We have covered most of the primary compliance areas so far. However, you must still consider a few more things when operating a business in the UAE. Depending on your location or industry, you need to be extremely careful with compliance requirements in the UAE.
1. Free Zone-Specific Requirements
Each Free Zone has its own set of rules and regulations. Most compliance requirements are usually the general ones. However, Free Zones are specially designed for specific commercial activities. Therefore, check with your Free Zone authority for any particular compliance requirements.
2. Industry-Specific Regulations
Specific industries, such as finance, healthcare, or education) may have additional regulatory requirements. In order to operate in these industries, you must research the specific regulations and ensure you comply with them to avoid any disruptions in your operations.
3. Data Protection
With the introduction of data protection laws in some emirates, businesses need to ensure they’re handling customer data correctly. Any violation can result in penalties or fines.
4. Emiratisation
The UAE has introduced emiratisation for businesses with a certain number of employees. These businesses are required to employ a certain percentage of UAE nationals. Hence, you must fulfill the quota and remain informed if there are any new requirements in your industry. It is recommended that you engage a business consultant to help you with these regulations.
How to Ensure Compliance in UAE?
The best method to ensure compliance in your company is to hire a business consultant or a consultancy firm to assist with all the compliance-related requirements. Juggling all the laws and regulations to stay compliant while avoiding penalties can sometimes be overwhelming.
However, there are still specific steps that you can take to make it more manageable.
Stay Informed
You must be aware of local laws and regulations to stay compliant. Therefore, regularly check official government websites for the latest updates or new regulations. This will help you adjust to changes promptly without having a last-minute realization when it is challenging to implement new things.
You can also consider subscribing to newsletters from reputable business consultancies. They usually share any new updates or compliance-related news daily or weekly.
Use Professional Services
You can consider hiring a compliance officer or outsourcing to a compliance service provider to keep you informed of any new updates or regulations passed by the government. Business consultancy firms also assist you in staying compliant by handling new rules and updates. Consider engaging with a firm with experienced accountants and auditors familiar with UAE regulations.
Implement Compliance System
You can also create an internal compliance system to stay ahead of the regulations. Use software tools to help with maintaining records and tracking deadlines. You can focus on developing internal policies and procedures to ensure consistent compliance. You can also engage a compliance consultant to help create a compliance system in your company and train your staff.
Regular Self-Assessment
It is necessary to conduct periodic reviews of your compliance status. Check for any non-compliance or similar issues in your company. If you find anything, address such issues promptly to avoid penalties.
Staff Training
It is mandatory that your team understands the importance of compliance. They must be aware of the consequences the business might face due to non-compliance. Therefore, you have to ensure that your staff receives proper training on relevant regulations and procedures. That way, you can be confident of remaining compliant and have a more efficient internal compliance system.
Conclusion
Compliance is a noteworthy aspect of running a successful business in the UAE. At some points, these requirements may seem too complex to understand. However, remaining compliant with them is extremely important for your business’s long-term success and reputation in the UAE market.
You must also understand that compliance isn’t just about avoiding penalties. In fact, it’s about building a sustainable and reputable business that can survive and grow in the UAE’s dynamic economy. By following these three steps, you can confidently handle the UAE’s regulatory challenges.
- Stay informed
- Seek professional help when needed
- Make compliance a priority in your business operations
Avyanco, a well-known audit firm in Dubai with its team of experienced compliance professionals, can provide you with all the help you need to grow your business without facing any penalties or fines. We take care of all your business’ compliance needs so you can focus on scaling and operations.
Connect with our compliance experts today to focus most of your time on your business growth while we focus on your compliance requirements.
