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 business 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 VAT audit.
If the business 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 VAT audit.
If you are running a VAT registered business in UAE and you have been chosen for an audit, you will be provided a notification by the tax authority in writing. In UAE, there are two kinds of audits for VAT: field audit and correspondence audit.
A correspondence audit is more common. It is where the tax authority sends a letter providing a description of the possible errors with the tax return submitted by the taxable person. The taxable person can reply with the documentation required in supporting its position. As for a field audit, 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 business in order to see if the transactions match with the submitted tax returns of the business and comply with relevant taxation regulations.
The chance of a business being chosen for an FTA VAT audit can be low for most kinds of businesses that are VAT-registered in the country. But, one has to remember that when a business is actually chosen for auditing firms in Dubai, the business should have a tax professional, its account, and/or a business lawyer present as the business is audited by an FTA official.
You should know: UAE Deadline for VAT Filing Extended to May 28 Due to COVID-19
VAT Audit Procedure in UAE
The tax authority will inform the VAT-registered business that will be audited five business days prior to the audit. But, in certain cases such as suspected tax evasion, no notice for an FTA VAT 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 business 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 business hours of the FTA.
A business that is subject to a VAT audit, as well as its legal representative, tax agent, and accountant, is to provide the necessary assistance and facilitate the audit with 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 business are accessible
- Prepare the tax records of the business 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 audit, especially the key employees that have compiled the tax return
In case the business fails to give the necessary assistance and records for the VAT audit, the taxable person will be levied all the applicable penalties.
Upon the audit’s completion, the tax 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 VAT registration that’s within the FTA’s specified time frame;
- Failing in settling payable tax;
- Failing to take VAT charges into account when it is its obligation as per the tax laws;
- Shortfall in payable for VAT due to tax evasion
Apart from a tax assessment, there will be administrative penalties that will be imposed on VAT-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 VAT accounting, VAT registration, and VAT consulting. Call us today to book a consultation!