VAT Tax Audit in UAE: What should you know about it?

A tax audit is basically a government’s assessment of a company about their responsibility as a taxable entity. This kind of audit is conducted by the FTA.

It is to ensure that every liability is paid and every tax due is collected and given to the government within the timeframe given. The government also assesses a company whether they are following certain responsibilities that apply to their business as per the tax laws (VAT Law, Excise Tax Law, etc.)

Factors of Tax Audit

Selecting a business for a tax audit depends completely with the FTA’s decision. Certain factors can be considered before selecting a business for a tax audit, such as:

● Large scale businesses

● History of delayed tax submissions

● The occurrence of incorrect tax filings

● The complexity of a business

Requirements for FTA VAT Audit in UAE

The taxable entities are required to keep certain records to facilitate the tax audit. Article (78) of Federal Decree-Law on Value Added Tax mandates the tax registrants to keep the following records and present them to the tax auditor during the audit:

● Records of all supplies & imports.

● Tax invoices and documents related to receiving goods & services.

● All tax credit notes and documents received.

● All tax invoices and documents issued.

● Records of Goods and Services purchased and for which the Input Tax was not deducted.

● Records of exported Goods and Services.

● Records of adjustments or corrections made to accounts or Tax Invoices.

● Details of Goods imported along with Customs declarations and Supplier Invoices.

● Records of goods and services that were disposed of for matters unrelated to business and records showing tax paid to the same.

Rights & Powers of FTA Tax Auditors in the UAE 

As per Chapter 2 of Federal Decree-Law no. 7 of 2017 on Tax Procedures and Title eight of Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures the tax auditors have the following rights and powers:

1. Right to Enter Premises

As per Article 18 of the Tax procedures Law, tax auditors in the UAE have the power to enter any place where the person subject to the audit performs the business, stores goods, or keeps records. If the need arises, the auditor can temporarily shut down the place in question for a period of up to 72 hours to perform the audit without prior notice if tax evasion is suspected or any potential hindrance to the tax audit is suspected.

2. Right to Obtain, Seize Assets

As per Article 18 of the Tax procedures Law, a tax auditor has every right to access the original records of copies of the records. The UAE tax auditor has the power to take samples of the stock, equipment or other assets from the place where the person subject to the audit conducts the business. The auditor has the right to seize the samples of stocks, equipment or assets if the need arises.

3. Right to Audit New Information

A tax auditor can audit any new information surfaced during the tax audit that may have an impact on the outcome of the Tax audit. However, this is conducted if the procedures are in accordance with the Tax procedures Law as well as the Executive Regulations of the Tax Law.

Things Reviewed During Tax Audit in the UAE

The taxable businesses are required to understand the major aspects that go under the FTA radar during a tax audit in the UAE. The following is a list of things that get reviewed during a UAE tax audit:

1. Accounting Software & System

Taxable companies are required to use proper accounting software to ensure compliance with the UAE VAT Law. Proper accounting software will help the companies reduce potential errors and discrepancies while filing VAT returns in the UAE.

Proper accounting software should generate the reports and records as defined under Article 2 of the Tax procedures Law. The best VAT consultancy firms in Dubai assist the businesses in deploying the best accounting software.

2. Output Tax Review

The UAE tax auditors also check zero-rated, exempted & standard rated tax are calculated as per the UAE tax laws. They also make sure that the standard tax rates are applied on taxable supplies like 5% or zero-rated. And goods that are eligible for zero-rated tax are charged as zero tax only with proper official and commercial evidence.

They also check the records of the goods that are imported into the UAE, whether they have been recorded as per the reverse charge mechanism (RCM).

3. Input Tax Review

At the time of tax audit in the UAE, the input tax is subjected to review to see if expenses and purchases are eligible for tax calculation. The UAE tax auditors check the input credits are validly taken for 5% and 0% supplies and not taken for exempted supplies and certain specifically restricted input tax like entertainment services.

At here, the tax auditor focuses on whether the taxable person has received the proper Tax Invoice with their TRN to ensure eligibility of input tax credits and other provisions.

4. VAT Returns Review

The tax auditor will verify the submitted VAT returns with the accounting records to obtain assurance and the completeness of the records and the VAT returns. At here the VAT return filed must be checked by Tax Consultants in UAE before submitting to the federal tax authority to ensure compliance with the law.

Notification of the Tax Audit Results

The FTA will notify the businesses subject to Tax Audit about the final results of the Tax Audit within 10 business days from the completion of the audit as per Article 17 of the Tax procedures Law.

The businesses that have been subjected to the tax audit in the UAE are allowed to view or obtain the documents and data on which the FTA based its assessment of Due Tax. This right of the businesses is enshrined in Article 17 of the Tax Procedures Law.

VAT Health Check

The main purpose of a VAT Health Check is to ensure that as a business your handling of VAT is in line with current FTA VAT laws and regulations. A VAT health check includes:

● Assess your in-house accounting records; documentation; VAT records etc.

● Review of your filed returns to identify any grey areas wherein you are perpetually making errors.

● Check if the returned figures as per VAT documents match with the financial records

● Analyze if you are making use of the VAT laws in getting proper credits or refunds for your business and if the same are claimed in the returns

● Identify areas wherein you can plan for a proper VAT planning

● Review of maintenance of accounts and records and audit trail for your VAT files

● Identifying areas of concern or opportunities, confirm that all your VAT returns are filed correctly and properly in relation to your business income and allowable expenses

● Confirm that all your documents are incompatible with the FTA requirements and if all of them are replaced or renewed whenever it is due.

How can YUGA Help:

We as Tax consultants can help you to find all the errors/mistakes/omissions in your VAT returns in order to minimize the risk of fines and penalties in case of Tax –Assessment by FTA. It will also ensure that you do not create VAT issues for your customers which can adversely affect your commercial relationship.

YUGA tax professionals are experienced in providing tax health checks that bring together our knowledge and experience in taxation and related internal controls. These health checks will be targeted towards enabling clients to undertake any necessary corrective action before an audit takes place & avoid the penalties.

Contact us for more information