Tax audits in the United Arab Emirates (UAE) became a reality after the Federal Tax Authority (FTA) implemented Value Added Tax (VAT) on the supply of taxable goods and services from 1 January 2018. Accordingly, as in any other tax regimes, the FTA undertakes an audit of business to verify its tax compliance.
A tax audit is the review of an organisation’s role as a taxable entity by the government. By conducting a tax audit (“Audit”), government auditors (“Auditor”) in the UAE ascertain whether a business is operating in-line with the tax laws including VAT and Excise laws amongst others. The objective of the Audit is to ensure that the tax liability is correctly ascertained, is paid correctly and tax due is collected and submitted to the government within the stipulated time.
Being Prepared For A Tax Audit In The UAE
It is expected that over time most entities registered for VAT will be subject to an Audit. Non-compliance with tax laws is likely to result in penalties and loss of reputation. A preliminary internal tax review by VAT experts before the actual Audit ensures that an organisation is:
- adhering to the relevant tax laws
- adopting the prescribed processes
- maintaining correct record keeping and retention of documents and
- filing its VAT returns in a timely and compliant manner
It is recommended that such a review is conducted at least once each year to ensure that the business is compliant with changing tax laws and other statutes.
FTA Tax Audit In The UAE
- Various laws have granted power to the FTA to conduct tax audits at its discretion after giving due notice to an organisation. The FTA will conduct the Audit according to its internal processes and guidelines. The Audit can either be conducted at the premises of the business or the FTA may request that all necessary documentation be brought to its office or sent electronically.
- An Audit may include accessing and reviewing the financial records of the company both in the hard format as well as electronic form. The law stipulates that the FTA should be able to access the accounting and other tax-related records from within the UAE even if the data is stored remotely. The FTA may review the returns filed by an organisation and then proceed to determine if the returns are accurate and in line with VAT/Excise laws and the executive regulations.
- No reason need be given by the FTA for conducting an Audit.
- The FTA gives notice of at least 5 days to a tax registered business prior to the Audit. The notice indicates to the business the Audit schedule, place of assessment, parties involved, etc.
- According to the scheduled time and place, the Auditor and the taxable person/entity will meet to begin the required audit procedure. During the meeting, the Auditor may request certain business records in original or copies and carry samples of goods and other assets as available at the given place and time.
- The law grants the right to a business to ask for the credentials of an Auditor such as a professional identification card issued by the FTA or any relevant government authority.
- An Audit is performed only during the official working hours of the FTA. Nevertheless, there may be exceptional instances when a business is requested to cooperate with the Auditor outside the official hours, only if decided by the Director-General.
- The taxable person or entity subject to an Audit is required to extend all assistance to the Auditors conducting the Audit. The business is at liberty to engage the support of its tax agents, legal representatives and accounting and finance personnel. In case the Audit is conducted outside the premises of the business, the presence of the relevant person from the business is mandatory at the time of the Audit.
- On completion of the Audit, the FTA will issue a report including the violations observed and the penalties to be paid by the business if any. The FTA may also re-audit the business if it has grounds for suspicious activity.
How PKF UAE Can Assist With A Preliminary Tax Review In The UAE?
PKF UAE offers a comprehensive taxation service in the UAE. Through our value-added services we aim to enable entrepreneurs/businesses to focus on business growth by appointing qualified tax experts to take care of all matters relating to tax in the UAE. Through our services we ensure that the interests of the business vis-à-vis tax compliance are protected and the risk of non-compliance is mitigated to a high degree. This approach helps businesses avoid penalties and loss of reputation.
The tax team at PKF UAE includes an in-house team of expert tax professionals and consultants who have significant tax exposure and experience in dealing with VAT and Excise tax. A practical and hands-on approach led by a Director ensures that the client receives best in class service.
Coupled with the presence of other PKF International member firms in other countries globally, PKF can offer seamless and integrated tax efficient solutions to businesses with a presence in more than one country.