An FTA tax audit is not a one-off VAT check anymore. Since Corporate Tax came into force under Federal Decree-Law No. 47 of 2022, the Federal Tax Authority can examine a business’s VAT position, Corporate Tax position and Excise Tax position under the same audit framework, and the rules on how far back it can look, what it can request, and how long a business must keep records have all changed in the last two years. Understanding the current process matters more than memorizing what an audit looked like when VAT was first introduced.
What Is an FTA Tax Audit?
A tax audit is the procedure by which the Federal Tax Authority inspects a taxable person’s commercial records, tax returns and supporting documentation to verify compliance with UAE tax law. The audit framework is set out in the Tax Procedures Law, Federal Decree-Law No. 28 of 2021, as amended by Federal Decree-Law No. 17 of 2025 with effect from 1 January 2026. The FTA can audit VAT returns filed under Federal Decree-Law No. 8 of 2017, Corporate Tax returns filed under Federal Decree-Law No. 47 of 2022, and Excise Tax filings, either individually or together, depending on the risk profile of the business.
What Can Trigger an FTA Tax Audit?
The FTA does not audit purely at random, though a small proportion of audits are risk-based selections with no specific trigger. The most common triggers are a mismatch between VAT return revenue and the revenue reported in a business’s audited financial statements, unusually large or repeated VAT refund claims, inconsistent input and output tax calculations across return periods, sector-specific risk flags where an industry has a known history of non-compliance, and information received from third parties or other government bodies, including customs data that does not reconcile with declared import VAT. A Qualifying Free Zone Person that is required to hold audited financial statements under Ministerial Decision No. 84 of 2025 but has not done so is also a clear audit flag under the Corporate Tax regime.
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What Happens During the Audit Process?
An audit begins with formal written notification, typically issued through the EmaraTax portal, that sets out the scope of the audit and an initial list of documents required. Where the FTA intends to carry out a field visit to the business premises, Cabinet Decision No. 74 of 2023, the executive regulation to the Tax Procedures Law, requires at least 10 business days’ written notice before the visit, except in cases involving suspected tax evasion where an unannounced inspection is permitted. Once underway, the audit generally covers three layers of review. A system review examines whether the business’s accounting software and internal controls are capable of producing accurate VAT and Corporate Tax data. A calculation review checks how input tax and output tax were computed against the applicable 5% VAT rate, and how taxable income was computed for Corporate Tax purposes. A returns review compares the actual VAT and Corporate Tax returns filed through the FTA portal against the underlying accounting records to confirm the sales, purchases, output tax, input tax and taxable income figures reconcile.
Also check: Tax Audit Services
What Records Must UAE Businesses Keep for a Tax Audit?
Under the VAT Law, registered persons are required to maintain records covering imports and supplies of goods and services, tax invoices and tax credit notes, records of goods and services disposed of or used for matters unrelated to the business, records of goods and services acquired where input tax was not recovered, export documentation, and adjustment or correction records tied to any tax return. The standard retention period is 5 years for VAT records and 7 years for Corporate Tax records from the end of the relevant tax period. Cabinet Decision No. 17 of 2026, effective 1 April 2026, adds a further 2 years to whichever period applies wherever a tax refund request is still pending, so businesses with an open refund claim need to retain the underlying records for longer than the standard period.
How Far Back Can the FTA Audit a Business?
Federal Decree-Law No. 17 of 2025, amending the Tax Procedures Law with effect from 1 January 2026, introduces a defined 5-year window within which the FTA can generally open a tax audit, replacing the previous open-ended exposure businesses faced. The same amendment also updates the conditions for making a voluntary disclosure, which remains the most effective way to correct an error found before the FTA does, since a voluntary disclosure made proactively carries materially lower penalty exposure than the same error found during an audit.
Must check: VAT Consultants in UAE
What Happens After the Audit Is Complete?
Where the FTA identifies a tax shortfall, it issues a tax assessment for the additional tax due, together with any applicable penalties. Cabinet Decision No. 129 of 2025 restructured the UAE’s penalty framework, setting late payment interest at 14% per annum and late filing penalties starting at AED 500 per month, rising to AED 1,000 per month, for continued non-compliance. A business that disagrees with an assessment can request reconsideration from the FTA and, if unsuccessful, escalate the matter through the Tax Disputes Resolution Committee and ultimately the courts.
See also: Corporate Tax Audit in UAE
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Common Mistakes Businesses Make During an FTA Audit
Treating the initial document request as a formality rather than the moment to get the file organized is one of the most common errors, since a slow or incomplete first response signals weak controls and often invites a broader scope. Businesses also frequently respond to auditor questions with informal explanations that are never put in writing, leaving no record if the same issue is later disputed. Another recurring mistake is discovering a genuine filing error mid-audit and staying silent about it rather than raising a voluntary disclosure immediately, which forfeits the reduced penalty treatment that a proactive disclosure would otherwise carry. Finally, businesses sometimes assume a Corporate Tax audit and a VAT audit are handled entirely separately, when in practice the same reconciliation issues, particularly revenue recognition timing, tend to surface in both.
How Farahat & Co. Can Help
Our team supports UAE businesses through FTA audit preparation, VAT and Corporate Tax reconciliation reviews, voluntary disclosure filings, and representation through the dispute resolution process where an assessment is contested.
Contact Farahat & Co. today to discuss your tax audit requirements.
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
