Month: September 2022
Submission of Audited Financial Statements in Dubai Development Authority (DDA)
Nithin NK, Partner
Phone:- +971 4 327 7775
Mobile:- +971 50 749 0576
WhatsApp:- +971 56 219 1607
Email:- dubai@hlbhamt.com
As per DDA Private Companies Regulations 2016 circular 421, FZ LLC’s and branch offices are required to prepare and submit their financial Statement and Annual Return each financial year. The requirements of the Audited Financial Statement for an FZLLC are provided in Regulations 63-68 of the Private Companies Regulations of 2016.
This regulation aims to achieve compliance with the applicable Federal and local laws regarding Anti-Money laundering and Combatting Financing of Terrorism, Economic Substance, and tax laws. A branch office may choose to submit the consolidated Audited Financial Statement of its parents, or a stand-alone extract of the financials of the branch office operations only
Companies from the below listed free zones must submit their most current audited financial statements by November 30, 2022.
- Dubai Internet City,
- Dubai Outsource City,
- Dubai Industrial City,
- Dubai Media City,
- Dubai Studio City,
- Dubai Production City,
- Dubai Knowledge Park,
- Dubai International Academic City,
- Dubai Science Park,
- In5,
- Dubai Design District and
- Dubai Quarters.
The financial statement and the duly filled financial Statement Report Summary Sheet should be submitted via the AXS portal.
Maintenance of books of accounts, Preparation of Financial statements, Appointment of auditors (Regulation 63 – 68)
- Every company is required to maintain books of accounts in accordance with the generally accepted accounting principles and the records shall be kept at the registered office of the company.
- Accounting records are to be maintained for at least 8 years.
- Financial Statements are to be prepared for each financial year of the company and it is the duty of the Directors to ensure this.
- The members of a company shall appoint an auditor to audit the financial statements of the company.
The submission of the Audited Financial Statement will be carefully monitored by the Authority and failure to comply may lead to the implementation of Decision No (2) of 2017 at the sole discretion of the Authority.
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IFRS 16 Lease Modifications – An Overview
Nithin NK, Partner
Phone:- +971 4 327 7775
Mobile:- +971 50 749 0576
WhatsApp:- +971 56 219 1607
Email:- dubai@hlbhamt.com
IFRS 16 is an international financial reporting standard that provides insights on accounting for leases. Issued in January 2016, the standard is effective for all of the entities that report under IFRS.
IFRS 16 defines how an IFRS reporter will identify, measure, present and disclose leases. The standard provides a single lessee accounting model, which requires lessees to identify assets and liabilities for all leases. Exceptions apply for cases wherein the lease term is 12 months or less or the underlying asset has a less value.
What is lease modification in IFRS 16?
When modifications that were not part of the original terms and conditions of the lease are made, it is termed as lease modification. Common lease modifications include, for example:
Underlying Assets:
- Adding the right to use one or more underlying assets
- Removing the right to use one or more underlying assets
Lease Term:
- Reducing the lease term
- Extending the lease term
Lease Consideration:
- Changing the consideration in the lease by increasing or decreasing the lease payments
- Modifications can occur in any of the above situations or all.
What is Lease reassessment in IFRS 16?
Lease Reassessment is reassessment of estimates used in lease accounting. Common lease reassessments include;
- Assessment of the lease term
- Assessment of whether a purchase option will be exercised.
- Expected amount payable under a residual value guarantee.
- Future lease payments from a change in the index or rates used to determine those payments;
- Lease payments resulting from a change in floating interest rates; or
- Variable lease payments becoming fixed or in-substance fixed payments.
How are changes to contractual terms and conditions accounted in IFRS 16?
Accounting for a modification that is not a separate lease
How are Discount Rates accounted in IFRS 16?
A. Modification accounted as a separate lease:
If the Lessee does not revise the discount rate used in the original lease. The new discount rate modification is accounted as a separate lease.
B. Modification not accounted as a separate lease:
If the lease liability is remeasured with the revised discount rate the modification is not accounted as a separate lease.
Increase in scope not at stand-alone price in IFRS 16
Here, a lessee accounts for a lease modification that leads to an increase in the scope by adding the right to use one or more underlying assets. But the consideration for this is not at a stand-alone price as given below:
- Allocate the consideration to each lease component on the basis of the relative stand-alone price of the lease components and in the case of non-lease components, the aggregate price is considered
- Decide on the term of the lease
- Remeasure the lease liability by discounting the revised lease payments at the revised discount rate; and
- Make a corresponding adjustment to the right-of-use asset
Example
Lessee A entered into a lease contract with Lessor B to lease one shop for 5 years. At the beginning of Year 3, A and B amend the contract for additional shop space in the same building for four years. The new shop space is the same size as the original shop space and similar in all significant respects. B has given a discount of 20% for the new space which are below the market rate for such a similar space.
Modification increased the scope by adding additional underlying asset but the increase in the lease amount is not commensurate with the standalone price for increase in the space. There, this modification is not a accounted for as a separate lease. At the effective lease modification date, A remeasures the lease liability by discounting the revised lease payments with the revised discount rates and make a corresponding adjustment in ROU.
Decrease in scope
A lessee accounts for decreases in scope – i.e. it is no longer possible to use one or more underlying assets or the contractual lease term is lessened– as follows:
- Allocate the consideration to each lease component on the basis of the relative stand-alone price of the lease components and in the case of non-lease components, the aggregate price is considered
- Decide on the term of the lease
- Remeasure the lease liability by discounting the revised lease payments at the revised discount rate; and
- Reduce the pre-modification right-of-use asset along with the pre-modification lease liability and recognize any gain or loss in profit or loss to reflect partial or full termination; and
- Make alterations to the remaining right-of-use asset for the difference between the remaining lease liability and modified lease liability.
Example
Lessee A entered into an 8-year lease for 5,000m2 office space with Lessor B. The rental payments are AED 100,000 per annum payable in arrears. The incremental borrowing rate at commencement of the lease is 6% (assume that the interest rate implicit in the lease cannot be readily determined). Subsequently, at the beginning of Year 5, A and B amends the contract to reduce the space to 3000m2 (i.e. a reduction of 2,000m2) with a reduced lease payment of AED 70,000 per annum, payable in arrears for the remaining four years. The incremental borrowing rate at this date is 7%.(assume that the interest rate implicit in the lease cannot be readily determined).
The decreases in scope (office space) and consideration were not included in the original terms and conditions of the lease. Therefore, this is a lease modification.
At the beginning of Year 5 (the effective date of the modification) there are two elements to be accounted for:
- As a first step, A accounts for the partial termination of the lease (reduction of 2,000m2) by reducing the carrying amount of the right-of-use asset and lease liability and recognising any resulting gain or loss in profit or loss account
- As a second step, A remeasures the lease liability by discounting the revised lease payments with the revised discount rates and make a corresponding adjustment in ROU.
Increase in lease term in IFRS 16
A lessee accounts for a modification that is an increase in the lease term as given below:
- Allocate the consideration to each lease component on the basis of the relative stand-alone price of the lease components and in the case of non-lease components, the aggregate price is considered
- Decide on the term of the lease
- Remeasure the lease liability by discounting the revised lease payments at the revised discount rate; and
- Make a corresponding adjustment to the right-of-use asset
Example
Lessee A enters into a 10-year lease of machinery with Lessor B with no renewal/termination options. A does not provide any residual value guarantee. The annual lease payments are 50,000 payable in arrears. At the end of Year 8, A and B agree to extend the lease term by an additional 5 years – i.e. the lease term will be 15 years in total. The annual lease payments remain unchanged and there are no amendments in the other clauses as a result of the modification.
Because there were no renewal options in the original lease, this is not a reassessment of the lease term. This is a lease modification that increases the lease term only – i.e. it does not grant A the right to use an additional underlying asset. Therefore, it cannot be accounted for as a separate lease. Thus A recognizes the difference between the carrying amount of the lease liability before the modification and the carrying amount of the modified lease liability as an adjustment to the right-of-use asset.
Change in consideration only
A lessee accounts for a lease modification that is a change in consideration as stated below:
- Allocate the consideration to each lease component on the basis of the relative stand-alone price of the lease components and in the case of non-lease components, the aggregate price is considered.
- Decide on the term of the lease
- Remeasure the lease liability by discounting the revised lease payments at the revised discount rate; and
- Make a corresponding adjustment to the right-of-use asset
Example
Lessee A enters into a 20-year lease of office space with Lessor B. The annual lease payments are AED 100,000 payable in arrears. At the end of Year 10, A and B agree to reduce the lease payments to AED 80,000 payable in arrears.
The change in consideration was not part of the original terms and conditions of the lease and is therefore a lease modification. The modification does not grant A an additional right of use and therefore cannot be accounted for as a separate lease. At the effective lease modification date, A remeasures the lease liability by discounting the revised lease payments with the revised discount rates and makes a corresponding adjustment in ROU.
The new standard provides detailed information on the lessor accounting for lease modifications. An entity adopting IFRS 16 are required to address historical lease modifications as part of its transition project. Also, all organizations must prepare for lease modifications that will take place after transition.
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UAE VAT – Practical Difficulties Faced by Artists & Social Media Influencers | #Ep03
September 21, 2022
Artists and social media influencers have a number of practical challenges when it comes to tax compliance, including those of
- Not keeping any records of accounts to track revenues
- Services offered with a verbal confirmation
- FOC transactions
Revenues from social media, which is not against any supplies, and many more to follow…
Watch the video to understand more about the topic.
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UAE VAT is Applicable to Artists & Social Media Influencers | #Ep02
September 21, 2022
Social media influencers and artists in the UAE are required to pay value-added tax (VAT) on the services they render, according to the Federal Tax Authority. Services might include paid in-person appearances, marketing initiatives, or any online promotional efforts like blogs or social media postings, among many others.
In this video, you will learn about several instances in which artists and social media influencers are entitled to UAE VAT.
For additional information, please email us at tax@hlbhamt.com
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UAE VAT is Applicable to Artists & Social Media Influencers | #Ep01
September 20, 2022
In the UAE, freelance professionals, including social media influencers and artists, are required to produce tax invoices and submit periodic VAT returns. Check out the video with a few scenarios included to learn more about the topic.
Please email us at tax@hlbhamt.com for additional information.
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HLB Tax Talks
From regulation to trade and taxation, we cover the latest trends
September 14, 2022
Ep 05 :- How to implement a 100% Tax Compliant Framework?
In this episode, HLB HAMT’s Tax expert, Mr. Girish Nair speaks on how client’s can achieve 100% tax compliance by maintaining books of accounts based on license, acceptable accounting standards, Arm’s length principle, Transactional Provision and reconfiguring Chart of Accounts in Accounting Systems.
Ep 04 :- Transfer Pricing Leader | Jayakrishnan & Girish Nair | TP Podcasts UAE
In this episode” Meet our Global Transfer Pricing Leader – Part 01″ features our experts Mr. Jayakrishnan (Tax & Compliance Partner) and Mr. Girish Nair (Tax Manager) having an insightful discussion with Mr. Carlos Camacho (Global Transfer Pricing Leader, HLB International) regarding the implementation of transfer pricing regulations in the UAE.
Ep 03 :- UAE Corporate Tax Introduction Part 2
Our Part 2 podcast has experts who explain some of the fundamental topics, including tax losses, tax groups, competition and administrative elements of corporate tax, impact assessment, and other relevant FAQs in accordance with the proposed UAE corporate tax regulations.
Ep 02 :- UAE Corporate Tax Introduction Part 1
A vital phase adopted by the UAE throughout the years is the implementation of corporate tax, which will go into effect in June 2023 as a part of embracing global openness principles and practices.
Let’s listen to our insightful and information-sharing podcast on the introduction to UAE corporate tax, Part 1, in which our experts discuss some of the critical topics about corporate tax and examine the most recent developments on corporate tax in the UAE.
EP 01 – Top Non-Compliances identified during FTA VAT Audit in UAE
HLB Talks tax helps tax leaders stay up to date with changes in UAE’s tax laws and regulations. Lead by HLB HAMT’s Tax Partner Mr. Jay Krishnan, this podcast breaks down various tax concepts and issues to help growing businesses stay compliant in the UAE.
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UAE unveils new public-private partnership (PPP) law to establish a stable, functioning economy
HLB News Team
In an effort to boost the contribution of the private sector to the advancement of the economy, the UAE has declared the introduction of a new public-private partnership (PPP) law.
According to His Highness Vice-President and Prime Minister of the UAE and Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, the PPP law was designed to coordinate collaborations between the two sectors by enabling the private sector to engage in tactical and infrastructure programs, enhancing investment in initiatives with strong economic and social principles, and elevating entrepreneurial endeavors to create opportunities and compete in local, regional, and international markets.
The government has always been involved in harnessing private investment to promote its expanding facilities, even if the more recent motivations underlying the growth of PPPs in Dubai are distinctive.
The PPP Law represents a significant improvement in the Emirate’s ability to implement PPP projects. Additionally, it will pave the path for the implementation of various initiatives that were inspired by the government’s aspiration to ramp up the involvement of the private sector in the growth of the nation’s economy.
To sum it up, the PPP Law is an evidence of the expanding prominence of the private sector in the UAE. Also, the law sends a message to Dubai’s private sector and to international companies considering establishing operations here that the Emirate is welcoming investors and, additionally, ready to modify its operational and financial business models for diverse initiatives.
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Non-disclosure of Import of Services & Voluntary Disclosure – UAE VAT
Sreekanth Karicheri
Phone:- +971 4 327 7775
Mobile:- +971 50 677 5860
WhatsApp:- +971 56 219 1607
Email:- dubai@hlbhamt.com
Background/Fact of the Case
- XYZ LLC (Hereinafter referred to as “The Company”) is a UAE mainland entity that is engaged in the activity of consultancy.
- The company is registered with the FTA with effect from January 2018.
- The company imported a service and received an invoice from an overseas supplier who is not registered for VAT in UAE for the purchase of online software.
- The value of the invoice was USD 500,000 dated 1st January 2021.
- The purpose of the software purchase is to provide easy/flexible consultancy services to their clients in UAE.
- The accountant of the company missed to disclose the above invoice in the relevant VAT return as import of service.
- While doing the reconciliation after 6 months, the accountant noticed the above-mentioned error.
Clarification Sought
- How to report the value of imported services of USD 500,000 that was not disclosed in the relevant VAT return?
- Since two tax periods have already passed from the receipt date of the invoice, whether a voluntary disclosure is required to correct the error even if the net VAT liability resulting from the transaction is NIL?
Basis of Opinion
- Article 1 of the Tax procedures Law
- Article 10 (1) of the Tax procedures Law
- Article 8 (2)(a) of the Tax procedures Executive Regulations
- Article 54 (1)(a) of the VAT Decree-Law
Applicability
Applicable to the tax registrants who omitted to disclose the import of services in the VAT return.
Application of the Law
A Taxable person is required to correct an error that results in a calculation of payable tax being less than AED 10,000 in the VAT return covering the period in which the error was discovered.
If the company uses the services to make wholly taxable supplies, and the related VAT is fully recoverable, the value of the error would be nil as the VAT Amount to be reported in respect of output tax and input tax would be the same. In such a scenario, the value of the error is less than AED 10,000 and the company can correct the error in the VAT return covering the tax period in which the error was discovered.
Since the tax impact resulting from the error is less than AED 10,000 the company is NOT required to submit the voluntary disclosure.
Solution
Based on the above explanations, the company is eligible to correct the mistake in the VAT return period in which the error was discovered.
Any questions or queries on this, please revert to tax@hlbhamt.com
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Recognizing Your Risk Indemnity for Professional Services
HLB News Team
In recent years, professional risks have significantly evolved with the regulatory environment. Professional indemnity insurance, also known as professional liability insurance or PI insurance, pays for your defence’s legal fees as well as any penalties or charges that may be imposed if it is claimed that you gave your client poor advice, services, or designs that resulted in financial loss.
A legal firm or other service providers may benefit from professional indemnity insurance to protect them from lawsuits and pay the expense of defending themselves against allegations of mistakes, malpractice, or carelessness on their part. Broadly speaking, professional indemnity insurance must be kept in force for the full duration of any limitation term, which in the UAE is 10 years.
What steps may businesses take to Mitigate Risk?
Let’s delve into some of the few steps to reduce your Professional Indemnity risk, including:
- Preventing copyright violations
It’s ideal to produce your own intellectual property rather than copying anything from the web, therefore be cautious not to get into trouble for doing so. - Data encryption is a must
Watch out for employees who bring their personal gadgets to work. When users are able to access to the Wi-Fi, laptops, phones, and tablets might carry malware that infect your network. - Safeguarding against data theft
All antivirus and anti-malware software should be updated. - Employee misconduct
- You run the risk of losing client data and information or misusing intellectual property, endangering both your customers and your own firm.
- Any information or work data on workplace computers and other devices should be treated with extreme caution. Tell your personnel to be cautious about leaving their laptops in public areas.
- Ensure that employees are informed of the risks associated with downloading applications from the internet. Avoid allowing staff to install new software on workplace computers.
Bottom Line
Professional Indemnity presently carries substantial and sophisticated risks, and has been dubbed “the products liability of the service industry.” Businesses that consider their vulnerabilities as being product or industry focused might be amazed to learn that outsourcing, internet sales, and intellectual property difficulties might position them to professional risks.
It takes a lot of professional inspection to detect and estimate your risks. To obtain maximum protection, firms should assess their risk from a number of perspectives and work with lawyers, economists, and actuaries.
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Cloud Native Apps: The New Avatars to Gain Momentum
HLB News Team
The emergence of cloud computing altered business practices by enabling greater access to apps hosted in the cloud at an affordable cost and with quicker usability. The new avatars, cloud-native apps, dramatically change how applications are created, hosted, and accessible while providing flexibility and increasing efficiencies.
Most businesses are making the switch to cloud-native technology as they see its enormous possibilities. A company’s approach to design, development and use must evolve to compete successfully in fast-moving, application-managed marketplaces.
What exactly are cloud-native apps?
Applications built for the cloud are made up of a number of tiny, unrelated, and loosely linked services. They are made to provide well-known commercial benefits, such as the capacity to quickly integrate customer feedback into ongoing development.
The process of generating and upgrading applications fast while enhancing the quality and lowering risk is known as cloud-native development. It is a method for accelerating the creation of new apps, the optimization of current ones, and the integration of all of them. Delivering apps that customers demand at a rate that businesses require is its objective.
Let’s examine some of these applications’ key features:
- Microservices: They divide a program into several separate services or modules. Each of these services makes use of its own data and promotes a specific corporate objective.
- DevOps: A mindset, automated, and infrastructure design strategy called DevOps aims to enhance corporate reputation and efficiency.
- Container-based: A sort of software called a container separates an application conceptually so that it can operate independently of physical resources.
- Application programming interfaces (APIs): Microservices and containers are connected through APIs, which also simplify safety and service.
Applications that are cloud-native have become more popular recently and are expected to dominate software development in the coming years. If your organization is in the finance, medical, or telecommunications industries, such apps can be the core of your business model. So, the evolving business necessitates the creation and delivery of new apps more quickly for consumers who have grown to demand a better standard.
Businesses use cloud technology to improve the flexibility and accessibility of their apps. In order to offer a uniform development and automated management experience across private, public, and hybrid clouds, an app must be “cloud-native.”
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