Importance of financial reporting; how it benefits your business?

Whether you have a small business or large, financial reporting is one of the key aspects of a successful accounting venture. In addition, it is a critical part of the finance organization and management of any business. In-depth financial analysis and reporting not only provide valuable insight but also enables the company with compliance. Likewise, it helps the management to make a wise and efficient decision for a lucrative future.

 

Financial reporting offers a lot of benefits for SaaS companies to protect business owners and potential stakeholders. The benefits are many. This blog points out the importance of financial reporting and how it can benefit your business?

 

Let’s get straight to the topic!

 

What is all about financial reporting?

It is a strategic and structural system to provide financial information about the organizations and show their economic performance. Based on the following pillars financial report is developed:

 

·         Assets

·         Liabilities

·         Equity

 

Based on their primary factors, it shows multiple financial activities like profit or earning of the company. Hence, businesses can set a goal for the next financial year and manage their operation process.

 

In fact, a business can also get a clear picture of their profit and how they can improve it. Moreover, with potential financial statements like balance sheets, cash flow analysis, and income statements, businesses can track their financial activities.

 

Four types of financial reporting:

Among the most important financial documents, the following four types play a pivotal role to determine a better business decision.

 

·         Income statement: income statement or profit and loss statement shows the revenue, expenses, and profits of a company.

·         Balance sheet: it features the assets, liabilities, and equity in a single period.

·         Retained earnings statement: it shows the change of equity during standard accounting periods.

·         Cash flow statement: CFS or cash flow statement features the liquid cash coming in and out. It provides the stakeholders a clear idea of business operates and manages the financial activities.

 

Undoubtedly, the success of a SaaS company heavily depends on the accuracy of financial reporting. Even though financial reporting has nothing to do with its management, however, it is an integral part of the company’s success.

 

Importance of financial reporting

According to a recent statistic, businesses that leverage data can take a better business decision and increase marketing productivity by 15% to 20%.

 

Let’s dive deeper into the importance of financial reporting.

 

Financial transparency

An accurate financial reporting provides the stakeholders, executive, and finance team a clear understanding of how the business operates. In order o gain financial transparency you need the following metrics:

 

·         Operating expenses and income ratio

·         The ratio of the executive compensation and average employee pay

·         Financial statement to categorize multiple expenses

 

Financial transparency automatically boosts stakeholder confidence. It also helps them to gain the better business decision. With a clear understanding of the stakeholders, profitability is likely to increase hand in hand.

 

Evaluation of tax liabilities

Another crucial benefit of timely financial reporting is that it helps organizations to evaluate their tax liabilities. The financial statement provides the data in two different ways:

 

·         A structural balance sheet with liabilities, assets, equity holdings, and net worth on a precise date.

·         A financial statement that potentially highlights different types of expenses to evaluate the breakages of money in certain areas is in turn associated with tax liabilities.

Trust building

For any organization financial statements can be used for verification and accuracy of all accounting discrepancies. In fact, also assist to mitigate error and provide a better understanding of expenses. Similarly, financial transparency can alleviate skepticism from investing perspective. Overall, it helps the stakeholders to understand the different financial standpoints.

Error mitigation

A tiny mistake in financial reporting can lead to a serious blunder. Similarly, businesses are often loaded with tiny financial loopholes that can lead to catastrophic falls. A timely and accurate financial report helps to mitigate the potential error in accounting. In fact, it also helps manage the expenditure in a better sense. Finally, it also boosts the confidence of the stakeholders and develops a better understanding source.

Key takeaways

Undoubtedly financial reporting is one of the crucial aspects of any business. Irrespective of their size and industry type, it is one of the imperative organs of your business. Financial statements help investors to determine how to allocate their capital and expect the best return. Similarly, it helps the managers to take wise decisions for future investments and expenses.

 

Reputed accounting services offer a clear benchmark to measure economic performance. In addition, the reports also serve as an audit, that the company executives can match and identify the source. In a nutshell, businesses with a vision of profit must acquire accurate and timely financial reporting services. If want to start with credible and efficient financial reporting services, please get in touch with us.  

 

Federal Corporate Tax

 Introduction of Federal Corporate Tax; what to expect?

The ministry of finance declared from the coming financial year, the profitable businesses are obliged to pay federal corporate tax. As compared to the competitive internal market, the UAE govt. has already applied 9% standard statutory tax for companies. According to the Tax Foundation in Washington DC, the average corporate tax rate in the EU27 countries is 21.3 percent. However, foreign taxes will be paid against any payable UAE corporate tax, hence; fortunately, there will be no double taxation.

 

 

 

In fact, to support small and medium-sized businesses the govt. has set a different rule. Companies with profits of Dh 375,000 fall under the regulation and are subjected to this competitive tax regime. Moreover, there will be no tax on employment income, real estate, and other potential investments. Apart from the clear regime, there are a few exceptions. Well, does your business fall under the federal tax system? Let’s find out in the next section.

 

Objective of the Federal Corporate Tax

The competitive CT or corporate tax regime is based on the best practices of the international market. In addition, the introduction of CT will eventually consolidate UAE’s position amidst the leading global hub for businesses and investments. In fact, it will accelerate the financial development with strategic objectives. Take a quick glance at the prime objectives of CT in the UAE.

·         To consolidate UAE’s position in the international marketplace. Hence, the initiative is largely supported by an extensive double tax treaty network

·         To acquire the strategic ambition and incentive from businesses and MNCs and expand their activities in UAE

·         Assuring the commitment of UAE to meet international business standards for tax transparency and prevent unlawful tax practices

Key aspects of Corporate Tax regime in UAE

The ministry of finance started this initiative in a progressive way. In fact, to encourage small and medium-size businesses they haven’t charged any tax. As proposed by the govt. the taxation regime would follow the table mentioned below:

 

Net accounting profit	Proposed UAE CT rate
0-375,000	0%
375,000 and above	9%

 

 

 

Well, the UAE CT is differently structured for multinational entities that fall under OCED (Organisation for Economic Development).

Businesses that fall under the CT regime

This is the prime focus of businesses that have acquired a net profit of more than Dh 375,000. So, let us have a look at the businesses that are obliged to pay CT.

 

·         This taxation system is applicable for all UAE business and commercial practices. In addition, it also covers all the legal entities that exercise financial activities. However, organizations that are undertaken by any natural resources will be subjected to Emirate level taxation.

·         Individuals with a business license to obtain any commercial and professional activities in UAE. However, people having their income from employment, investment, interest from bank deposits, any personal income outside UAE trade activities and real estate are not related to this regime.

·         Foreign organizations and individuals based on their trade in the UAE. However, CT is not applied for foreign investors’ income from royalties, investment returns. Dividends and capital gains.

How GULF CFO can help you out in clearing CT?

Gulf CFO is a leading accounting organization. In fact, the company is backed by strong financial experts and accounting professionals. From financial advisory to VAT, from tax services to ESR, we have a wide range of accounting services. In addition, we bring together world-class capabilities and quality services to align with a strong financial model. With government reporting to compliance, our models help businesses to consolidate their financial strength. Well, as a top-rated tax advisor our tax services include:

 

·         We can help you to have a clear understanding of the proposed CT regime. In fact, we can also arrange financial strategies to clear the tax system smartly and lawfully.

·         We can also identify and restructure your business opportunities and make you strong financially.

·         Identify the gap of the required changes and implement a better method to support CT legislation.

·         Offering day-to-day support that concerns report assessment and compliance and advisory services.

Over to you

Business already involves a lot of expertise. Moreover, the core business operations are so daunting that business owners hardly have the time to manage their tax regime. Hence, it is better to get a professional accounting service that promises better financial health.

 

 Economic Substance Regulations (ESR) In The UAE

All You Need To Know

Recently, the UAE Cabinet of Ministers revoked the first resolution from 2019 and issued a revised regulation through Cabinet Resolution No. 57 of 2020, which we'll ask here because the New ESR. Supplementary guidance for the New ESR was punlished through Ministerial Decision No.100 of 2020 from the UAE Ministry of Finance (MOF), which replaces the previous Decision No. 215 of 2019, and includes an updated Relevant Activities Guide.

In this article, we'll explore the key amendments under the New ESR you would need to know about , outline what you'll expect next, and share to ensure you're prepared.

The New ESR amendments Explained

The definition of Licensees has changed

The definition of "Licensees" which are required to suits the New ESR now only applies to a company person (incorporated inside or outside of the UAE), or an unincorporated partnership – each having a presence within the UAE and conducting a Relevant Activity.

If you're a natural person, trust, sole proprietor, or foundation, you not fall within the scope of the definition.

These new exemption categories now include:

• investment funds

• entities which are owned (100%) by UAE residents and which are not part of a multinational enterprise group and which only carry out their activities in the UAE

• entities which are a tax resident not in the UAE, and

• branches of foreign parent companies where the relevant income is subject to tax not in the UAE.

Majority government-owned entities are no longer exempt, unless they fall within one of the updated exemptions of the New ESR. 

If you're a Licensee and need to profit from the exemption you'll got to provide evidence that your entity qualifies for an exemption.

UAE company branches don't got to file separate notifications anymore

The New ESR recognises that UAE branches of a UAE company do not have separate legal personalities from their parent or head office. Therefore, if you're a branch of a UAE parent entity and are registered within the UAE, you not got to file separate notifications. All that's needed may be a single notification concerning the Relevant Activities of your UAE parent company alongside all of your UAE branches.

Reporting requirements for UAE companies with non-UAE branches have been tweeked

If you're a UAE company that conducts a Relevant Activity only through a branch registered outside the UAE, your UAE company doesn't got to report and demonstrate economic substance in situations where the income earned through the branch is taxed within the oversees jurisdiction where the branch is registered.

Foreign companies with UAE branches even have relaxed reporting requirements

If you're a far off company with a branch office registered within the UAE, then you do not got to demonstrate economic substance under the New ESR, as long as the income earned by your branch’s activities, that might conceptually fall under a Relevant Activity category, is subject to tax in your overseas jurisdiction.

UAE company branches don't got to file separate notifications anymore

The definitions for connected person and group have changed

New definitions for "connected person" and “group” are introduced. These will impact the assessment regarding whether you're conducting the headquarters business, distributions and repair centre business, also as high risk IP Business Relevant Activities.

The requirement to import and store goods inside the UAE may be a thing of the past

The requirement to import and store goods inside the UAE – which was previously required for the "distribution" a part of the Distribution and repair Centre Business Relevant Activity – is not any longer applicable.

Furthermore, for the "service centre" element of this Relevant Activity, the services provided

by Licensees not got to be provided "in reference to a business outside of the UAE", but rather any services provided to a far-off related party would seem to end in your business as a Licensee possibly falling into this category.

The FTA is now responsible of compliance and control

The UAE FTA has been appointed because the National Assessing Authority to oversee compliance and control of the New ESR.

If you are a Licensee, you will have to file a notification with the MOF

The New ESR still includes several regulatory authorities’ responsibilities for receiving economic substance notifications, economic substance reports, and everyone supporting documents.

However, the new guidance suggests that if your business qualifies as a Licensee, you'll need to file notifications with the UAE Ministry of Finance, via a web portal – which, as of this update, remains to be launched – within six months from the top of your fiscal year.

Penalties

The penalties under the New ESR are increased, including the chief penalties for non-compliance, which are now between AED 20,000 and AED 50,000. If you fail to satisfy the economic substance test your business could incur a penalty of AED 50,000; you would possibly also face the suspension or non-renewal of your license as additional penalties.

Deadlines

In the absence of updated filing deadlines, it appears that the deadline for economic substance reports for the 2019 fiscal year will remain 12 months after the top of the relevant fiscal year. If you are a Licensee, this could be as early as 31 December 2020.

It's important to notice that each one Licensees (including exempted Licensees) are required to file notifications on the new online portal once it's available, no matter whether or not they have already submitted notifications for the 2019 fiscal year under the old legislation.

What happens next?

If you've got a UAE business – including entities registered in free zones and offshore entities – we recommend you re-assess whether you qualify as a Licensee or an exempted Licensee as soon as possible. Alongside this, we encourage you to urgently reconsider whether you're conducting a Relevant Activity under the New ESR and new guidance. Doing so will enable you to form the acceptable compliance filings when the new filing portal becomes available.

Given that the top of the 12-month period following a Licensee’s 2019 fiscal year is approaching for several entities, we also recommend that you simply look beyond the primary stage notification filing. If your UAE entity qualifies as a Licensee, has conducted a Relevant Activity, and derived income from an equivalent within the reporting period, it might be prudent to start out preparation of the documents and knowledge required to point out how the economic substance test is met. 

If any gaps are identified, it's crucial for you to plan and implement a mitigation strategy to make sure compliance and avoid severe consequences within the future. 

GulfCFO Services is here to assist you

For further information or for assistance with your evaluations or filings, please contact us at hi@gulfcfo.com or visit our website http://gulfcfo.com

Bookkeeping and Accounting

 

Business Setup in UAE

Mainland Business Setup  |  Free Zones Business Setup  |  Offshore Company Formation

Business Setup in UAE

             

Mainland Business Setup

A Limited Liability Company is the most common form of a business entity currently formed in Dubai & UAE. Business setup in Dubai Mainland requires a business to be registered with the Department of Economic Development (DED). LLC Trade license in Dubai is the highly recommended type of company formation to start a business in the UAE. The infrastructure & facilities are of international standards that make it an ideal choice to form a company in UAE. Apart from that, other emirates in the UAE have different advantages in setting up a business.

Jitendra Business Consultants consists of experienced business setup consultants that are expert in providing a complete business setup solution for LLC company formation in Dubai and other emirates of the United Arab Emirates. We provide reliable UAE local sponsors for any type of mainland business setup in Dubai. We make custom business plans for our clients and provide quick and fast government approvals and PRO services.

Free Zones Business Setup

Free zone company formation in UAE enables the investor to own 100% ownership. Business setup in UAE free zones gives you a wide range of services depend upon the type of business activity you choose. Free zones in UAE located in important locations like international borders, international airports, international seaports to get the maximum advantages. Free zone authorities are the government bodies that register and issues trade licenses to non-resident companies in UAE free zones.

UAE free zones offer the best facilities to the license holders like the ease of one-window operation, dedicated offices and 100% ownership. There are about 44 free zones located in the United Arab Emirates.

Offshore Company Formation

An offshore company is also called a non-resident company with 100% foreign ownership, there are various benefits of registering an offshore company in Dubai & UAE. The main advantage of forming an offshore company is it doesn’t need a sponsor. Another advantage is that the identity of offshore company owners can be kept confidential unless there is suspicious business activity.

Forming an offshore company in UAE is the best option for those who want to expand business overseas and intend to serve the international market from UAE. They may also own real estate properties approved by authorities.

Three main jurisdictions offer offshore company formation in UAE that is Ras al Khaimah (RAK) offshore, Jebel Ali Free Zone (JAFZA) offshore & Ajman Offshore Free Zone. All three offer 100 % ownership and charge no income or corporate tax. Offshore Companies are permitted to open multi-currency accounts in the UAE and run business internationally. RAK offshore company formation is the most low cost as compare to JAFZA offshore company formation but JAFZA offshore companies are legally allowed to own property located in Dubai.

UAE VAT Compliance Checklist

UAE VAT Compliance Checklist

VAT has already been introduced in the UAE, and companies are currently working towards making their company VAT compliant. Nevertheless, the chaos around VAT rules and compliance standards continue to exist. This checklist would help you by clarifying all a business needs to do to become VAT compliant.

VAT Checklist

Here’s a checklist for businesses to stay VAT Compliant

Understand the VAT

The UAE government has offered different resources through its website and other ways for companies to become familiar with UAE VAT and its Rules. It is important to explore all the details available on the government website. They have added blogs, and other informational stuff to get acquainted with VAT and its laws to stay compliant and understand how and what affects your company. You can even reach out to experts to get more info on this. It is also vital to find out whether this is applicable to your products or no.

• Keep track of your Tax return period & due dates.
• Emirate-wise reporting of sales and other productions.
• The report separately import of services and goods announced through UAE customs.
• Combine details as per the format of the FTA.
• The net value of standard-rated supplies and output VAT amount must be informed after contemplating credit notes.
• Purchases or expenses on which input VAT is restricted should not be included in Input VAT Recovery.

VAT Registration

Companies with an annual turnover of Dh 375,000 are mainly obliged to register for VAT. There is an administrative penalty of Dh 20,000 for those businesses have not yet been registered. Before it’s too late, get your businesses registered for VAT now.

VAT provisions in Business Contracts

Given the fact that the VAT has become compulsory for businesses in the UAE, companies should include the VAT clause in their current and new agreements. If the agreement does not hold a VAT clause, the price in question will be deemed to be inclusive of VAT.

In accordance with the VAT law in the UAE, the companies are obliged to file quarterly returns. The return and tax payment must be made within 28 days after completion of the tax period.

Training your Staff

Your business may or may not come under VAT cover, but you should maintain appropriate accounting and professional documents in accordance with the VAT regulations. Companies are required to move the tax management & record keeping from manual to digital. This establishes the requirement for an expert group of accountants. If you’ve got that already, ensure your accountants are very well-trained in the theories and norms of the VAT. It’s important they know how to account for VAT compliance and file VAT returns.

Hiring a Professional

If your company still lacks an accounting expert or team, you might need to hire an accountancy firm or accountant who can process your business accounting records and file the proper VAT returns on time.

Update IT Software and Systems

Post the introduction of VAT, businesses must look for a trustworthy VAT management software that can process various VAT related tasks, such as filing returns, producing invoices, etc. Considering upgrading their IT software & systems should be on priority to stay VAT compliant.

VAT Management and Control

A most important part of implementing VAT in your business is going to be the proper and uninterrupted management of different VAT processes. It is critical that your organization has a professional who understands VAT laws and regulations and can take care of intricacies as and when required

You should be in continuous contact with your accounting team to learn the method and status of VAT reporting. Also, keep a close eye on any changes announced by the FTA concerning VAT.

Closing Note

It is important to understand that VAT is not levied on the revenue of a business, but only on transactions. The revenue limit is used only in establishing the VAT eligibility of a business.