The UAE’s Federal Tax Authority (FTA) increased the number of tax audits it conducted by 46% in 2025, according to the Authority’s newly published annual report. This stronger enforcement activity helped generate more than USD 1 billion in additional tax revenue during the year.
The figures provide a clear sign that the UAE’s tax system is entering a more active enforcement phase. After a decade of developing its tax framework, the FTA is increasingly using artificial intelligence (AI) and data analytics to identify potential compliance risks. As a result, tax audits are becoming more targeted and data-driven instead of relying mainly on manual reviews.
Meanwhile, total tax revenue from VAT and Excise Tax reached AED 46 billion, or approximately USD 12.5 billion, in 2025. This represents a 15% increase from AED 41 billion in the previous year.
The Ministry of Finance attributed this growth to a combination of continued economic expansion and improved tax compliance. Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs, said the results reflect the strength of the UAE’s fiscal approach and the continued development of its tax and fiscal framework.
From Rule-Building to Enforcement
Nils Vanhassel, head of the Middle East tax practice at Addleshaw Goddard, described the shift as the natural next phase of a tax system that the UAE has been developing for years.
Commenting on the figures, Vanhassel noted that the UAE has spent almost a decade building its tax framework. The country first introduced VAT and Excise Tax, followed by Corporate Tax and the Global Minimum Tax framework. The focus has now shifted from introducing new taxes to ensuring that existing tax rules are properly enforced.
The FTA’s 2025 annual report supports this view. In addition to the 46% increase in formal tax audits, the Authority reviewed approximately 1.7 million transactions through its Tax Registration Department. This was more than 20% higher than the figure recorded in 2024.
Meanwhile, completed Corporate Tax registration applications exceeded 245,000 during the year. VAT registration applications reached 98,000, while the Authority completed 206 Excise Tax registration applications.
These figures highlight the continued expansion and administration of the UAE’s tax system. More importantly, they show that the FTA is placing greater emphasis on registration, transaction monitoring, compliance, and enforcement as the country’s tax framework continues to mature.
Why Corporate Tax Has Reshaped the FTA's Workload
The introduction of the 9% Corporate Tax has significantly expanded the scope of the FTA’s supervisory responsibilities. Unlike VAT, which generally applies at a flat rate of 5% and is linked to specific registration and turnover requirements, Corporate Tax has brought a much wider range of businesses into the UAE’s tax system.
Its broad application across mainland and Free Zone businesses has created a larger compliance population for the FTA to oversee. As a result, the Authority now has to monitor a greater number of registrations, tax filings, transactions, and potential compliance risks.
This marks an important structural shift in the UAE’s tax environment. The country has moved from a system largely centred on VAT to a multi-tax compliance framework. Businesses must now consider VAT, Excise Tax, Corporate Tax, and the incoming Global Minimum Tax rules for large multinational groups.
Therefore, the sharp increase in transaction volumes and tax audits is not surprising. As the UAE’s tax system becomes broader and more complex, the FTA is also expanding its use of data, technology, and enforcement tools to manage compliance more effectively.
The Technology Behind the Numbers
The FTA has invested heavily in technology and its workforce over the past several years. It has also become increasingly open about using artificial intelligence (AI) and data analytics to identify potential areas of non-compliance before deploying audit and inspection resources.
Instead of selecting audit targets randomly or responding only after an issue arises, the Authority is increasingly using risk-based analytics. This approach helps the FTA identify and prioritise higher-risk cases. As a result, the Authority can increase audit activity without needing a proportional increase in enforcement staff.
This technology-driven approach is expected to become even more important with the phased rollout of mandatory e-invoicing. The voluntary pilot phase opened on 1 July 2026, ahead of mandatory implementation for large taxpayers from 1 January 2027.
Under the new e-invoicing framework, in-scope businesses must issue invoices in a structured digital format. These invoices will pass through a Ministry of Finance-accredited service provider using the Peppol network. This process can give the FTA access to transaction-level data much closer to real time.
Previously, the Authority often relied more heavily on information reported through a VAT return after the relevant reporting period. E-invoicing can create a much more immediate view of business transactions. Therefore, discrepancies between invoice data and tax returns may become easier to identify.
Similar systems in other jurisdictions have already changed how tax authorities approach compliance and audits. As the UAE expands its digital tax infrastructure, businesses will likely face greater transparency, stronger data matching, and more targeted tax audits.
A Coordinated Shift, Not an Isolated Data Point
The 46% increase in tax audits should also be viewed alongside two other important enforcement developments during the same period.
First, market inspection visits increased by 89% year-on-year, reaching approximately 176,000 visits across all emirates in 2025. During these inspections, FTA teams identified more than AED 608 million in outstanding tax liabilities and related penalties.
Second, the UAE introduced a revised penalty framework on 14 April 2026 under Cabinet Decision No. 129 of 2025. The new framework replaced the previous compounding penalty structure with a flat 14% annual rate. It also made Voluntary Disclosures submitted before an audit notice significantly less costly than waiting for the FTA to identify an error.
Taken together, these developments point to a clear and coordinated enforcement strategy. The FTA is increasing the number of audits and inspections while also encouraging businesses to correct mistakes voluntarily.
In effect, the Authority is reducing the cost of early self-correction while increasing the likelihood of detecting non-compliance through audits and inspections. Therefore, businesses that identify and correct tax errors early may face lower financial consequences than those that wait for the FTA to discover the issue.
What This Means for UAE Businesses
For business owners, the practical message behind the 46% increase in audit activity is clear. The likelihood of facing an FTA audit has increased.
Therefore, businesses with uncertainty around historic VAT, Excise Tax, or Corporate Tax filings should treat these issues as active compliance risks.
Receiving an FTA audit notice does not automatically mean that a business has committed fraud or made a major error.
However, it does mean that the Authority will formally review the business’s records, tax filings, and supporting explanations. The quality and accuracy of the business’s initial response can also influence how the audit process develops.
Businesses should review their historic VAT, Excise Tax, and Corporate Tax filings now. Where errors or omissions are identified, businesses may have an opportunity to correct them through a Voluntary Disclosure before receiving an audit notice.
Under the revised penalty framework introduced in April 2026, early self-correction can be significantly less costly than waiting for the FTA to identify the issue.
Businesses should also strengthen their internal record-keeping and reconciliation processes. This is becoming increasingly important as audit activity rises and the UAE moves towards mandatory e-invoicing. From 2027 onward, e-invoicing is expected to provide tax authorities with greater visibility into transaction-level data.
In particular, businesses approaching the AED 50 million revenue threshold for the first mandatory implementation wave should begin their e-invoicing readiness planning without delay.
The January 2027 deadline should not be treated as a distant milestone. Instead, businesses should use the current increase in audits and inspections as an additional reason to accelerate their preparations.
As the UAE’s tax framework moves from introducing new rules towards stronger enforcement, compliance must become an ongoing business discipline. The businesses best prepared for this next phase will maintain accurate records, submit timely tax filings, perform regular internal reviews, and seek advice from qualified tax professionals when needed.
Frequently Asked Questions
How much did FTA tax audits increase in 2025?
Formal tax audits rose 46% during 2025, helping lift additional tax revenue by more than USD 1 billion, according to the FTA’s 2025 annual report.
What were total UAE VAT and Excise Tax revenues in 2025?
AED 46 billion, up from AED 41 billion in 2024 – a 15% year-on-year increase attributed to both economic growth and improved compliance.
Why has FTA enforcement activity increased so sharply?
The introduction of Corporate Tax significantly expanded the FTA’s supervisory scope. Meanwhile, increased investment in AI and data analytics has helped the Authority identify potential non-compliance more efficiently before deploying audit resources.
How does the rise in audits connect to e-invoicing?
Mandatory e-invoicing, which will roll out from 2027, is expected to give the FTA near real-time visibility into transaction-level data. As a result, discrepancies between invoices and filed tax returns could become visible much more quickly. This increased transparency reinforces the same data-driven enforcement trend reflected in the 46% rise in tax audits during 2025.
Audit activity is up 46%. Would your records hold up under an FTA review today?
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Author:
As a leading audit firm in Dubai, NR Doshi & Partners supports UAE businesses with audit readiness reviews, historical tax filing reconciliations, and Voluntary Disclosure preparation across VAT, Excise Tax, and Corporate Tax.
Our tax advisory team can help you identify potential compliance gaps and assess your audit exposure before an FTA review or inspection. Contact our team today to strengthen your tax compliance and prepare for the FTA’s continued enforcement activity.
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