A tax audit is a process carried out by the Federal Tax Authority (FTA) to examine the commercial records or any information or data of taxable persons conducting business in the UAE, according to the Tax Procedures Law (Federal Decree-Law no. 7). The FTA conducts a tax audit on a taxable person to ensure compliance with the provisions of the UAE VAT Law as well as the Tax Procedures Law. By conducting a tax audit, the FTA ensures that the taxable person has paid all liabilities and that all taxes due is collected and paid to the government within the time frame specified. Tax agents registered with the Federal Tax Authority in the UAE assist companies with pre-audit and post-audit support to ensure VAT compliance. Companies should avoid approaching tax agents who are not FTA-registered.
Capella Tax Consultancy L.L.C is a VAT Consulting Firm that provides Tax Auditing Services in Abu Dhabi, Dubai, and throughout the UAE. It is always advisable to hire tax agents to conduct pre-tax auditing in order to be prepared for an FTA tax audit.
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The Federal Tax Authority's TAX Audit Process
The FTA-appointed officials are in charge of conducting a tax audit in the UAE. During a tax audit in the UAE, tax auditors from the FTA will inspect tax returns and other related information. According to the Tax Procedures Law, the FTA may conduct a tax audit for any reason at any time.
Despite the fact that the FTA does not require a specific reason to conduct tax audits in the UAE, the Authority typically sends a notice to the taxable person or business at least five days before the scheduled date, as per Article 17 of the Tax Procedures Law. A tax audit is normally conducted during the FTA's normal working hours, according to Article 19 of the Tax Procedures Law. However, in exceptional circumstances, the FTA Director-General may authorize tax audits outside of the Authority's working hours.
The tax procedures law requires the company, their legal representatives, and tax agents in Dubai, UAE to provide all possible assistance to the FTA tax auditors. If tax auditors discover irregularities or suspicious information during the tax audit, they can request a re-audit. Companies can seek the advice of registered tax agents in Dubai, UAE, to ensure compliance.
In the UAE, records must be kept for tax audits.
Taxable entities are required to keep certain records in order to facilitate tax audits. Article (78) of the Federal Decree-Law on Value Added Tax requires tax registrants to keep and present the following records 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 that were disposed of for matters unrelated to business and records showing tax paid to the same
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
Tax Auditors' Rights and Powers in the UAE
Tax auditors have the following rights and powers, according to Chapter 2 of Federal Decree-Law No. 7 of 2017 on Tax Procedures and Title 8 of Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures:
1. Right to Enter Premises
Tax auditors in the UAE have the authority to enter any place where the person subject to the audit conducts business, stores goods, or keeps records, according to Article 18 of the Tax Procedures Law. If tax evasion or any potential hindrance to the tax audit is suspected, the auditor may temporarily shut down the location in question for up to 72 hours to perform the audit without prior notice.
2. Right to Obtain, Seize Assets
A tax auditor has the right to inspect original records and copies of records under Article 18 of the Tax Procedures Law. The UAE tax auditor has the authority to take samples of stock, equipment, or other assets from the location where the person being audited conducts business. If necessary, the auditor has the authority to seize samples of stocks, equipment, or assets.
3. Right to Audit New Information
A tax auditor can audit any new information discovered during the tax audit that may have an impact on the audit's outcome. However, this is only done if the procedures follow the Tax Procedures Law and the Executive Regulations of the Tax Law.
Major Issues Examined During UAE Tax Audit
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 are some of the items that are scrutinized during a UAE tax audit:
1. Accounting Software & System
To ensure compliance with the UAE VAT Law, taxable companies must use proper accounting software. Accounting software will assist businesses in reducing potential errors and discrepancies when filing VAT returns in the UAE. Accounting software should be used to generate the reports and records required by Article 2 of the Tax Procedures Law. The best VAT consulting firms in Dubai help businesses implement the best accounting software.
2. Output Tax Review
The UAE tax auditors also ensure that zero-rated, exempted, and standard-rated taxes are calculated in accordance with UAE tax laws. They also ensure that standard tax rates, such as 5% or 0%, are applied to taxable supplies. And only with proper official and commercial evidence are goods eligible for zero-rated tax charged as such. They also examine the records of goods imported into the UAE to see if they have been recorded using the reverse charge mechanism.
3. Input Tax Review
During a 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 ensure that input credits are validly claimed for 5% and 0% supplies and are not claimed for exempted supplies or certain specifically restricted input taxes, such as entertainment services. The tax auditor focuses on whether the taxable person received the proper Tax Invoice with their TRN to ensure eligibility for input tax credits and other provisions. In this regard, tax agents in Dubai assist businesses in preparing for tax audits.
4. VAT Returns Review
The tax auditor will compare the submitted VAT returns to the accounting records to ensure the accuracy and completeness of the records and VAT returns. To ensure compliance with the law, the VAT return must be checked by Tax Consultants in UAE before being submitted to the federal tax authority. They go over all of the files to ensure they meet the tax authority's requirements. Consult with the best VAT Consultancy firms in Dubai to ensure that you meet the FTA requirements during the tax audit.
Notification of the Tax Audit Results
According to Article 17 of the Tax Procedures Law, the FTA will notify the businesses subject to Tax Audit about the final results of the Tax Audit within 10 business days of the audit's completion. Businesses subjected to a tax audit in the UAE are permitted to view or obtain the documents and data on which the FTA based its assessment of Due Tax. This business right is enshrined in Article 17 of the Tax Procedures Law.
Always Hire FTA Registered Tax Agents
The FTA audits tax registrants in the UAE to ensure that they are in compliance with the VAT Law, Excise Tax Law, and other tax regulations. Because the FTA conducts the tax audit, businesses require the expert assistance of registered tax agents in Dubai, such as Capella Tax Consultancy L.L.C, who assist them in preparing for the audit..
Capella is one of the most reputed VAT consultancy firms in Dubai with a team of FTA-registered Tax Agents. CAPELLA assist the companies by providing them with pre-audit and post-audit support as well as support during the tax audit. CAPELLA’s support ranges from transaction advisory to documentation support. CAPELLA’s tax agents in Dubai highlight the risks, areas of exposure and non-compliance before and after the audit. CAPELLA also advises the businesses on what actions they should take after the tax audit by the FTA.