VAT Audit in UAE

With the implementation of value-added tax (VAT) in January 2018, the business environment in the UAE transformed from a tax-free heaven to a progressive and dynamic commercial hub. Compliance with tax regulations and achieving financial success in the United Arab Emirates require an awareness of the subtleties of tax audits. The Federal Tax Authority (FTA) conducts tax audits following the Tax Procedures Law (Federal Decree-Law No. 7), closely examining pertinent data and business records of enterprises that conduct business in the United Arab Emirates.

Why are VAT and Other Taxation Audits So important?

A VAT audit in UAE is more than just a formality; it is a thorough process that confirms adherence to the UAE VAT Law and the Tax Procedures Law. It is used by the Federal Tax Authority to ensure that all tax obligations are satisfied and that overdue taxes are promptly collected and submitted to the competent government agency.

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What are the necessary conditions for VAT audit compliance for FTA?

Article (78) of the Federal Decree Law on value-added tax requires companies to keep and provide certain records to support a seamless tax audit. These records include:

Supplies and imports data
The whole record of tax invoices, receipt for services and goods
Records of tax credit notes with all relevant documents
Data relating to non-deductible input taxes on relevant purchases including services and goods
Data relating to exports of both services and products
Any tax invoice either adjusted or corrected
Data related to imported goods comprising invoices issued by supplier invoices and customs records.
Data related to product sales and other non-business services along with payment of tax proof.

What are the powers of the federal tax authority auditors?

Cabinet Decision No. 36/2017 under Article 8 and Cabinet Decision No. 7 of 2017 describes the powers vested with the approved auditors by Federal tax authorities under tax procedures law as mentioned below:-

Access to the business premises: The FTA auditors are vested with the power to have access to the business premises of taxable entities for audit purposes specifically in such a situation where tax evasion/tax fraud is suspected. The auditors may have access to any such places associated with the taxable person. They also can close the premises temporarily for up to 72 hours.
Power to acquire and seize assets: The auditors are vested with powers to take machinery, stock samples, original documents, and all other assets that are relevant to the taxable entity for audit purposes. The auditors are empowered to seize the records if necessary.
Audit of newly surfaced information: The auditors are empowered to deal with the new information surfaced during audit proceedings in compliance with applicable laws and relevant regulations. The auditors can review their findings in light of every piece of information that came into their knowledge during audit procedures.

What are the main areas of attention during a Tax Audit?

The entities ought to be aware of the main components that during tax audit are required to be examined:-

Systems and software of accounting: To minimize anomalies and errors in VAT returns filing and to ensure VAT compliance, the accounting software is recommended to be used under the VAT regulations for credit notes, tax invoices and self-billing.
Output tax assessment: Auditors assess the taxpayer data to verify compliance and accuracy while computing the standard-rated, zero-rated, and exempted taxes.
Input tax assessment: Examining input tax is a crucial phase in a tax audit in the United Arab Emirates to establish the accuracy of purchases and costs used in tax computations. Auditors carefully check input credits to ensure they are allocated appropriately to exempt products or certain limited categories like entertainment and are not mistakenly claimed for supplies taxed at 5% or 0%. The correctness of tax invoices and the Tax Registration Numbers (TRN) that go with them are also under the auditor’s scrutiny. These are essential for confirming input tax credits and compliance with relevant laws.

Analyzing VAT Returns: Verifying Correctness and Obligation:

The examination also includes VAT returns, verified for accuracy and completeness by cross-referencing them with accounting data. To guarantee compliance with legal requirements, businesses should have their VAT returns examined by knowledgeable tax consultants in UAE before submitting them to the Federal Tax Authority.

Submission of Tax Audit Results

The Tax Procedures Law’s Article 17 states that the federal tax authority must notify the audited enterprises of the findings within ten business days after the tax audit’s conclusion. In keeping with a transparent audit procedure, the same item also gives companies the ability to view or obtain the records and information that served as the foundation for the FTA’s tax assessment.

Farhat & Co. is a reliable audit firm in Dubai, providing specialized solutions and helpful advice to ensure compliance and reduce risks. For example, Farhat & Co. offers comprehensive support with record keeping and other documents to offer strategic guidance on how to handle audit results during the VAT audit process. Their knowledgeable tax advisors work directly with customers to identify their specific needs, develop proactive compliance strategies, and protect their financial interests in Dubai’s volatile economy to offer robust defenses in the event of an audit.