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Value added tax (VAT) is not a new phenomenon for companies in the UAE. However, the likelihood of a federal tax authority (FTA) tax audit is high. The provisions of the federal law on taxation have mandated the FTA with the legal right to perform a tax audit on any person to determine their compliance with the provisions of the relevant laws.
Definition of a tax audit
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
a) If the authority has serious grounds to believe that the person subject to the tax audit is involved in tax evasion;
b) If the authority has serious grounds to believe that not temporarily closing the place where the tax audit is conducted will hinder the conduct of the tax audit;
Rights of an audited person
Audit completion
Voluntary disclosure
For any queries, please get in touch with MBG Corporate Services
Email: uae@mbgcorp.com;
WhatsApp/Phone: +971-526406240
Visit: www.mbgcorp.com/ae
— Mahmood Badri is CEO-GCC, institutional business and taxation at MBG Corporate Services, and Vipin Kumar Ahuja is associate partner — taxation at MBG Corporate Services
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