Is your organisation based in the UAE? If so, you should know that UAE's Federal Tax Authority has started conducting VAT audits for businesses. Are you VAT-ready?

Our blog explores everything you need to know about VAT in the UAE and how to prepare for the audit. Let's get down to business.

UAE's VAT Audit: What Is It All About?

The Value-Added Tax (VAT) returns for your UAE-based business are a self-declared, legally binding statement of your tax liabilities. Your organisation is responsible for submitting accurate tax returns within the stipulated date.

UAE's Federal Tax Authority (FTA) is the governing body that implements various procedures for conducting tax audits and reviewing tax compliance for organisations across many business sectors. The FTA also reserves the right to conduct tax audits per The Executive Regulation of Federal Law No. 7 of 2017 on Tax Procedures.

Why Does the FTA Conduct Tax Audits?

The FTA conducts tax audits to examine all commercial records and other information related to the business activities of the taxable person. Another prime objective is to ensure that the taxable person complies with UAE's VAT law provisions and Tax Procedure laws.

FTA Tax Audits will likely increase in the UAE as the VAT system settles in. The FTA will likely use tax discrepancies and non-compliance as reference points to identify similar error-prone entities or industries. UAE taxpayers should ensure tax compliance now that the FTA has tightened its grip on its tax auditing procedures.

How Important Are Tax Audits?

Tax audits are essential for law-abiding taxpayers, even though they are complex and time-consuming. It is a self-assessment system that:

• Promotes voluntary compliance
• Scrutinises tax discrepancies and non-compliance
• Enables the implementation of tax laws
• Educates organisations on tax compliance
• Collates supply chain information
• Collates the status of the tax system and its policies
• Pinpoints aspects that require clarification

All businesses liable for tax audits must permit the FTA to access their business records, financial transactions and other important documents. FTA authorities will also question the organisation's staff, if necessary.

Businesses with accurate and transparent records have nothing to worry about. FTA's tax audit will help ensure that:

• The taxable person or business is free of any tax liabilities
• All tax dues are collected within the stipulated date
• The collected tax dues are submitted to the government

Authorities can also conduct further assessments if additional issues are discovered during an audit. Furthermore, unpaid tax dues or non-compliance with UAE tax laws will attract penalties.

To be on the safe side of the law, businesses must ensure complete VAT compliance with FTA laws. The following guidelines will help you prepare for FTA's tax audits.

How to Prepare for an FTA VAT Audit

Here are some key aspects to consider if you are doing business in the UAE:

• The UAE legislation gives the FTA extensive powers to ensure compliance.
• FTA can demand full disclosure of business records and impose penalties for tax discrepancies and non-compliance.
• UAE businesses are required to demonstrate compliance during audits.
• It is best to be well-prepared rather than make assumptions or take tax laws for granted.

When the FTA conducts an audit on your business, it will seek to establish the following factors:

• Understand your business and its operations
• Management of customs processes and cash-related risks
• Accuracy of your sales and purchase transactions records and ratings
• Supply chain management and complete data
• Controls, processes and governance of your business

It is easier to prepare for an audit when you take care of things ahead of time rather than scrambling at the last minute. All tax audits require certain records, and FTA's VAT audit is no different.

Federal Decree-Law on Value Added Tax Article (78) mandates tax registrants to maintain the following records for inspection by the tax auditor:

• Import, export, and supply records
• Invoices and receipts for received goods and services
• All tax credit notes, tax invoices and documents received
• Account adjustments or corrections made to tax invoices
• Records of goods and services purchased without deducting input tax
• Imported goods along with customs declarations and supplier invoices
• Items disposed of for non-business purposes and records that show how much tax was paid

To demonstrate tax compliance, here's what you ought to do:

• Ensure timely and complete furnishing of documents and records
• Pre-assess your tax returns to ensure accuracy
• Rectify auditing errors under voluntary disclosure

The UAE law grants reduced penalties under self-disclosure of errors the earlier they are declared.

Stay Compliant, Stay Safe

The importance of tax compliance and transparency cannot be overstated when running a company that lasts for decades or even centuries. To ensure compliance, businesses must draft and implement internal tax policies and practices. The company should regularly review its tax treatment and procedures and make necessary changes if non-compliance is detected.

Make tax audits easier by hiring the Fortius Consulting Services team to help you handle your tax requirements. Want to have a discussion?  We are ready! Call us now!