Guide for Retaining Accounting Records & Commercial Books

When it comes to adhering to the tax rules in the UAE, keeping suitable records is a vital feature of compliance. Understanding the provisions of the Tax Procedures Law (TPL) and the VAT Law is vital for those in business to remain compliant. This complete manual can help you implement the record-keeping obligations of the Executive Regulations to VAT Law and provide a step-by-step method for managing the business records in an organized way. 

1. Understanding Record-Keeping Requirements

According to Article 4^6 of the Executive Regulations to VAT Law, a taxable person must reasonably retain accounting and commercial records. The law provides two methods for retaining these records:

• Retention of Original Documents: You must keep original copies of supporting documents for your accounting records.

• Alternative Retention of Documents: You can retain copies by way of photocopy or electronic copies, PROVIDED they have the same information as the originals. All records must be readable, retrievable, and reproduced when requested.

These provisions will allow businesses to maintain compliant records for tax while reducing the risk of penalties or fines during

2. Retaining and Storing Records Step by Step

All businesses, regardless of size, should have an organized record-keeping system providing accurate documentation about what has occurred within their organization. The Total CFO offers one of the best accounting services in Dubai that provides precise record-keeping services. This is a guide to creating an effective and compliant record retention and storage system.

Step 1. Categorize Your Records

Categorizing your records is the first and most significant step to an organized and compliant filing system. Some of the main sections or categories to consider may involve the following:

• Accounting Records – Any financial statements, ledgers, and journals. 
• Commercial Books – Contracts, invoices, purchase orders or any other documents detailing business transactions may be considered as commercial books.
• Supporting Documentation – Receipts, payroll records or inventory records.

Categorizing records is important because it makes the process of accessing or retrieving a record easier for the user, as well as helping to comply with legal requirements.

Step 2. Determine Your Storage Options

In general, there are two options to store the documents: physical storage or electronic storage of documents.

• Original Documents: If you plan to maintain original copies of documents, it is imperative to store them in a safe place, such as fireproof cabinets or secure rooms that will prevent accidental damage or an opportunity for loss. 
• Electronic Copies: If you choose the electronic document storage option, make certain that the copies of all scanned or electronic documents are clear and readable, as well as being an exact copy of the original. Use a secure document management system to save your documents electronically.  For instance, a cloud-based storage system that also permits data backup is a good example. 

*Take Notice: If the number of records you maintain is large, consider storing electronically; although there may be an expense, there may also be ample space saving in addition to the cost.

Step 3: Manage Retention Periods

Retention periods vary, depending on the type of records. Here is a summary of how long records should be retained:

• 5 years – For most accounting records and commercial books, relating to taxable persons. 
• 7 years – For real estate records and extended records. 
• 15 years – For VAT records related to real estate, for companies in real estate. 

As a best practice for records, date-tag your record for when the retention period expires, so that the timing and management of retention will be more effective. 

Step 4: Provide Backup and Security of Records

And to ensure the records are secure, you should also be working on providing a backup solution:

• Backup – Make sure to store in both on-site and cloud backup solutions. 
• Security – Ensure strict security processes such as encryption, and restrict access to the records to ensure integrity and protect documents. 

This assures that the records are available for audits and, if necessary, protects against the possibility of data loss.

3. Destroying Records: When & How

Once the legal retention period has expired, businesses should implement their process for the destruction of records.

Step 1: Audit and Tax Considerations

• Do not destroy records before audit: If an audit is ongoing or a tax dispute is in process, you must keep all records, even if they are beyond a legal retention period. The records must be kept until the audit is finalized or the tax dispute is fully resolved.

• Voluntary disclosures: If you made a voluntary disclosure OR corrected a tax return within the last year of the retention period, the records may need to be kept for one additional year.

Step 2: Plan for Document Destruction

• Establish a Retention Schedule: Document the records by legal retention periods. For example, records of taxes may need to be retained for 5-7 years, and real estate records may be retained for 15 years.
• Cost vs. Risks: It may be more costly to store records, but don’t weigh short-term expense against the risk of a penalty for not providing records during an audit.

• Shredding/Deleting: Once the retention period is complete, be sure to shred physical records and delete electronic records permanently. Document this process to show compliance.

4. Standard Practice for Record Maintenance  

To facilitate a smooth record maintenance process, consider the following best practices:  

Procedure for Record Creation and Storage  

• Create a Record: Document all business transactions accurately.  
• Assign a Category: Categorize records based on your organization’s classification scheme.  
• Store Safely: Keep physical or electronic copies of records in a safe location or system.  
• Assign Retention Tags: Tag the record with a review or destruction date, based on the retention period.  

Destruction Process  

• Conduct Periodic Review: Conduct periodic reviews of records nearing their retention date.  
• Cross Check with Audits: Ensure there is not a current or pending ongoing audit on the records in question before shredding them.  
• Start Destruction: Proceed to shred the physical records or delete the electronic records, following your policy for handling such situations.  

Create an Audit Trail  

Log when records are created, when records are stored, when records are accessed, and when records are destroyed. This will provide accountability and transparency and allow you to trace the handling of documents in case of any subsequent litigation.  

5. Cost and Space Management Solutions

Efficiently managing records shouldn’t incur high costs or be a significant burden; a few alternatives that will make your record-keeping process more efficient are as follows: 

• Digital Transition: Think about using digital tools to scan and save documents. Digital documents typically take up less space than physical records, and digital documents can be easily and safely backed up.

• Outsourced Storage: If you are storing records but want to keep them for the long haul, you can consider outsourcing to a third-party provider. This is especially appealing for physical records that must be kept for a long time.

• Retention Management Software: Use software that tracks document expiration and notifies you if it’s time to review and consider destroying a record. 

Conclusion

Aligning with the record-keeping requirements of the UAE and tax law does not need to be overwhelming. A structured approach will help businesses develop sustainable methods for storing, managing, and destroying records while adhering to requirements. Understanding the obligations, properly categorizing and storing records, understanding retention periods, and having a secure system for records destruction can help.

Doing all of that will reduce the risk of penalties, unnecessary spending, and create a sustainable compliance strategy that will meet the requirements of the Tax Procedure Law and VAT Law. Consider a reliable accounting firm in Dubai for all your accounting needs 

*Legislative References

• Federal Decree-Law No. 28 of 2022 on Tax Procedures.
  
• Federal Decree-Law No. 8 of 2017 on Value Added Tax.
  
• Cabinet Decision No. 74 of 2023 on the Executive Regulation of Federal Decree-Law No. 28 of 2022.
  
• Federal Decree-Law No. 47 of 2022 on Corporate Tax.
  
• Federal Decree-Law No. 32 of 2021 on Commercial Companies.