The key to being an entrepreneur is creating a business plan that helps you start and run your dream business. By understanding the basics of accounting for sole entrepreneurs, you can manage your finances properly without becoming a financial expert.
1. Business Registration
Registering your business is the first step to managing your finances as an entrepreneur. Doing business in UAE has many benefits for sole entrepreneurs around the world. Companies in UAE are subject to a minimum income tax.
To be eligible for UAE business benefits, however, the UAE has strict licensing and registration requirements. Here is a short overview of each step of the process:
- To start a business in the UAE, your first step should be to decide on your business activities.
- When the scope of your business activities is clear, it’s time to choose the name of your business.
- Choosing whether to operate in a free zone or on the mainland is the last step before applying for a license.
- A business license is, of course, a critical requirement for starting a small business in UAE.
- Set up a business bank account
Separating personal and business finances is essential for sole entrepreneurs. Separate your finances from your personal finances to avoid losing track of business expenses, complicating your accounting system, and even getting in trouble with the law. By opening a business bank account, you can easily separate your personal finances from your businesses.
Corporate banking facilities are difficult to access for overseas sole entrepreneurs due to the UAE’s strict anti-money laundering laws. The process is much smoother when you work with an expert.
2. Choose an accounting standard
Accounting standards define financial reporting principles. They specify how transactions should be recorded. For creditors, lenders, and investors, it provides a small amount of leverage and some financial information.
Each company manages its accounting records differently and according to different rules. Bookkeeping principles such as Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are widely applied.
All companies must comply with international accounting standards and practices when preparing their financial statements under the UAE Commercial Companies Law No 2 of 2015, which became effective on 1 July 2015. Thus, all UAE companies must report their financial information per IFRS standards.
3. Plan your bookkeeping method
As a next step, establish a consistent method for bookkeeping for your business so that your books are in order. In the bookkeeping process, you track everything within your business, from revenue earned to expenses incurred. Your business will need a method for tracking money coming in and going out, so you need to develop one you can stick with.
Along with establishing a consistent method for bookkeeping, UAE businesses are required to maintain records for accounting and tax purposes.
Here are some options for bookkeeping methods:
- Cloud-Based Solution: Cloud-based accounting solutions let you handle your bookkeeping online, track transactions automatically, and even connect with your business bank account for data collection.
- Outsourced-Time Bookkeeper: You can hire an expert bookkeeper to manage your workload if you prefer not to worry about your bookkeeping.
- In-House Bookkeeper: When your business grows enough to require a full-time bookkeeper, you can hire one on staff.
4. Get to know your tax obligations
Some entrepreneurs may find filing their taxes intimidating, especially if they have never done it before. Your tax obligations will vary depending on how you register your business since sole proprietorship requirements differ from corporate requirements. It would be best if you prepared for the following taxes as an entrepreneur:
- Value Added Tax (VAT) Tax: Businesses that import and provide taxable supplies exceeding AED 375,000 per year must register for VAT. It is optional if your supplies and imports exceed AED 187,500 a year. When a company collects tax from its customers, it pays the government.
- Corporate Tax: The UAE corporate tax regime will be one of the most competitive globally since it is set to have a standard tax rate of 9 percent (9%) and a zero percent (0%) tax rate on taxable profits up to AED375,000 to encourage startups and small businesses. This comes into effect from the financial year beginning 1 June 2023.
There is a risk that your new business venture may be subject to an unforeseen tax audit from the FTA in UAE. Thus, it is necessary to keep tax records for a minimum of five years to comply with tax authorities requirements.
Get in touch with Creative Zone Tax & Accounting experts at email@example.com and to get the most out of your finance!