A tax audit by the FTA in the UAE is an in-depth review of a business’ financial information, accounting records and VAT return filings maintained by the taxpayer, ensuring that the taxpayer has correctly assessed and reported their tax liability, complying with relevant laws and regulations and have fulfilled other obligations. There need not be a specific reason for the FTA to conduct an audit of a company. They can conduct it for any reason or whenever they want as per a set of criteria. It is advisable to all the business entities in the UAE to prepare themselves as FTA allows only five days to respond to queries. Businesses have to ensure that they have correctly determined tax positions for standard rated, zero rated and out of scope transactions. Further, they need to ensure that accurate and complete financial data has been captured into the system upto the period for which VAT returns have been filed, proper reconciliations of VAT returns with respective ledgers from books of accounts and custom records are maintained and all the supporting documents and custom records are maintained.
Tax audit procedures
Once the tax audit is initiated, the concerned business is required to produce all the information as required in the format as prescribed by the FTA. Unlike the VAT return, which is a box-wise summary based on the nature of transactions i.e., the consolidated details of sales, purchase, input VAT, output VAT, etc. are declared, the audit, as prescribed by the FTA, is required to produce details at the invoice level Although Value Added Tax (VAT) is not a new concept for companies in the UAE, the chances of a tax audit by the Federal Tax Authority (FTA) are significant. The Federal Law on Taxation has authorized the FTA to conduct tax audits on any individual or entity to verify their adherence to the relevant laws.
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.
This article was published on 5 April 2023
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