A VAT audit that is ordered by the Federal Tax Authority occurs when there are potential errors that are uncovered in the tax return submitted by a VAT-registered company in UAE. Typically, the tax authority will schedule an audit for a tax return that was filed from the past five years. For substantial errors, FTA can go further back. There are a couple of factors which can trigger the tax authority in the country to order a value added tax audit.

If the company takes a lot of deductions, report high levels of earnings, and/or claim losses for several years, all these are risk factors which call for an FTA value added tax audit.

If you are running a value added tax registered business in UAE and you have been chosen for an financial inspection, you will be provided a notification by the tax authority in writing. In UAE, there are two kinds of audits for value added tax: field audit and correspondence audit.

A correspondence audit is more common. It is where the tax (levy) authority sends a letter providing a description of the possible errors with the levy return submitted by the taxable person. The taxable person can reply with the documentation required in supporting its position. As for a field financial inspection, it is when the taxable person meets with an examiner appointed by the FTA to meet at the taxable person’s place of business. It can also be in the local office of the FTA or the office of the accountant of the taxable person.

The examiner will examine all the financial records of the company in order to see if the transactions match with the submitted levy returns of the business and comply with relevant taxation regulations.

The chance of a company being chosen for an FTA VAT financial inspection can be low for most kinds of businesses that are VAT-registered in the country. But, one has to remember that when a company is actually chosen for auditing firms in Dubai, the business should have a levy professional, its account, and/or a company lawyer present as the business is audited by an FTA official.

VAT Audit Procedure in UAE

The tax authority will inform the VAT-registered company that will be audited five business days prior to the financial inspection. But, in certain cases such as suspected levy evasion, no notice for an FTA value added tax audit will be provided by the tax authority. Take note: a business won’t be notified as well if the FTA has reason to believe notifying the business regarding the impending audit can hinder the performance of the audit.

A VAT audit can be in the place of company of the taxable person or in the office of the FTA. If the audit will take place in the place of business of the taxable person, then it will be within the normal company hours of the FTA.

A company that is subject to a value added tax audit, as well as its legal representative, levy agent, and accountant, is to provide the necessary assistance and facilitate the financial inspectionwith the auditors in Dubai sent by the FTA. This is to ensure that the audit is carried out smoothly and within protocol.

The following are a couple of the actions which a taxable person should take upon receiving a letter from the FTA regarding a scheduled VAT audit:

Make sure all relevant premises of the company are accessible
Prepare the tax records of the company including tax invoices and books of accounts for examination by the auditor
Have all original copies of invoices and other documents ready
Ensure all relevant staff members will be present during the financial inspection, especially the key employees that have compiled the tax return

In case the company fails to give the necessary assistance and records for the value added tax financial inspection, the taxable person will be levied all the applicable penalties.

Upon the financial inspection completion, the levy authority will provide the taxable person a report on the audit’s results.

If the audit’s conclusion leads to one or all of the following, a tax assessment will then be issued:

Failing to submit the business’ tax return within the FTA’s specified time frame;
Submission of incorrect VAT returns;
Failing to send an application for value added tax registration that’s within the FTA’s specified time frame;
Failing in settling payable levy;
Failing to take VAT charges into account when it is its obligation as per the levy laws;
Shortfall in payable for VAT due to levy evasion

Read more: Financial Records to be maintained for a VAT Audit in UAE

Apart from a levy assessment, there will be administrative penalties that will be imposed on value added tax-registered businesses for every single violation. At VAT Registration UAE, our team of regulated tax agents in UAE can help you with all matters related to VAT. We also provide different services such as value added tax accounting, VAT registration, and VAT consulting. Call us today to book a consultation!