An FTA Tax Audit in UAE is an examination of various records kept by the taxpayers to ensure that their VAT liability is accurate, one of the compliance checks. The FTA may perform a tax audit at the taxable person’s business premises as part of a ‘field tax audit’ or at FTA offices. Generally, the taxpayer will receive a notice of an audit before it takes place.
Let’s deep dive into the tax audit in UAE.
What Is Tax Audit In UAE?
Taxes such as VAT are self-assessment taxes, which means that the taxpayer is responsible for determining the amount of tax payable. Input tax that may be recoverable based on the supply made during the period is sent to the FTA through VAT Returns. The FTA uses the tax audit procedure to verify whether the self-assessed declaration is correct or not.
In the case of discrepancies, resulting in underpayment of VAT or overclaiming input VAT deductions, an assessment will be issued by the FTA, requiring taxpayers to pay the VAT along with penalties.
What Triggers An Tax Audit?
When conducting an tax audit, the FTA will inspect the tax returns as well as other documents and information that are part of the tax returns. It is not necessary for the FTA to have a particular reason for auditing a taxable entity. An tax audit can be conducted by the FTA in the UAE at any time or for any reason. It is nevertheless a requirement of Article 17 of the Tax Procedures Law that the FTA will notify the company at least five days before the date of the audit.
FTA Tax Audit Timeline
It is not compulsory for all taxable businesses to undergo an audit. In terms of the frequency of audits, there is no set schedule. It will be the FTA’s job to select businesses to audit from time to time. It is at FTA’s discretion whether or not to audit the businesses completely. Considerations for choosing the business for a tax audit include the following.
- Business size and complexity
- Business compliance history
- Late return submissions are on the rise
- Errors in filing returns, etc.
Tax Audit Procedure
FTA usually notifies a taxable person five business days prior to an tax audit. If the probability of notifying would hamper the FTA’s ability to conduct the audit, it may be necessary to withhold notice. The act of tax evasion also falls under this category.
The FTA conducts tax audits at the businesses of taxable persons or in some cases at their offices. FTA audits usually take place during normal business hours at taxable persons’ places of business.
Business owners (including their tax advisors or representatives) must facilitate and provide the tax auditor with the necessary assistance in order for the audit to proceed smoothly. When a taxpayer receives a notice of a tax audit, they should follow the following steps:
- Accessible premises
- Books of accounts, tax invoices and other tax records are accessible for examination
- Employees who compile tax returns are present
- A copy of the original document or invoice
It is possible that the taxpayer may be subject to applicable penalties if the taxpayer fails to provide the necessary records or does not assist in the conduct of the tax audit.
Upon completion of the audit, the FTA will inform the taxable person of the results. The tax assessment will be issued as soon as the conclusion of the audit reveals that any of the following cases have occurred:
- Failing to register within the VAT Law’s timeframe.
- Failure to submit a tax return within the VAT law’s deadline.
- Inability to settle the payable tax shown on your VAT return within the time limit.
- Incorrectly filing your VAT return.
- Failure by the Registrant to account for taxes on behalf of another person as per law
- VAT shortfall due to tax evasion
Additionally, if there is evidence that the findings could lead to any of the instances specified in the law, the taxpayers shall be liable for administrative penalties.
What Can Creative Zone Tax & Accounting Do For You?
UAE companies need to minimize the risk of fines and penalties from FTA. In the event of a Tax Assessment by the Federal Tax Authority of UAE, a VAT Audit-Review is essential. Creative Zone Tax & Accounting can help your business with a VAT audit review as we are an approved tax agency from the Federal Tax Authority of UAE. Our Tax Agent can represent your company and make the FTA Tax Audit process go smoothly.
It helps you identify all errors, omissions, and mistakes in your VAT returns. Furthermore, the review will ensure that your customers don’t have any VAT issues that may negatively impact your business relationships.
You can reach out to us at tax@cztaxaccounting.ae