A tax audit conducted by the FTA in the UAE involves a thorough examination of a company’s financial data, accounting records, and VAT return filings to verify that the taxpayer has accurately assessed and reported their tax liability, complied with relevant laws and regulations, and fulfilled other obligations. 

The FTA has the authority to conduct audits on businesses for any reason, without the need for a specific cause, based on a set of criteria. To prepare for a potential audit, businesses in the UAE should ensure that they can respond to queries within five days. They must correctly determine tax positions for standard rated, zero-rated, and out-of-scope transactions, accurately capture financial data in their systems up to the period for which VAT returns have been filed, maintain proper reconciliations of VAT returns with respective ledgers from their books of accounts and custom.

Rights of an Audited Person

• Request the tax auditors to show their job identification cards.
• Obtain a copy of the tax audit notification.
• Attend the tax audit, which takes place outside the FTA.
• Obtain copies of any original paper or digital documents seized by the FTA.

Audit Completion Timeline

• The FTA shall inform the taxable person the final results of the tax audit within 5 business days from the completion of the tax audit As per Article 24 of the Federal decree law no. 28 of 2022.
• If any tax assessment is performed, a taxable person can view or obtain the documents and data on which the FTA based its assessment.

Voluntary disclosure

• The FTA encourages the submission of voluntary disclosure by taxpayers who may have violated the provision or who believe that a mistake was made.
• Proactive approach for failures or mistakes is necessary for avoiding a penalty. A voluntary disclosure should be made by a taxable person to notify the FTA of an error or omission in their tax return, tax assessment or tax refund application.
• It is a matter of question how a business can find errors/mistakes in already filed VAT returns. A business can go for VAT audit review/ VAT health check to understand the mistakes in already filed returns. A VAT audit-review by a registered tax agency (approved from the Federal Tax Authority of the UAE) can help you to find all the errors/mistakes/omissions in your VAT returns.
• Eventually, this exercise will minimise the risk of fines and penalties in case of a tax assessment by the FTA. It will also ensure that you do not create VAT issues for your customers, which can adversely affect your commercial relationship.