FTA Tax Audit Framework – Mitigating Risk with Timely Amends

The UAE government introduced VAT (Value Added Tax) in 2018. Companies should always be prepared, knowing that the FTA can conduct a surprise tax audit whenever they want. Under the federal laws concerning taxation, the FTA has the authority to subject any individual/entity to tax audits to ensure compliance with the relevant laws.

How Do you Define an FTA Tax Audit?

The FTA conducts tax audits in the UAE, and it covers the following-

• A detailed review of the entity’s financial information, accounting records, & VAT return filings.
• Make sure that the taxpayer has thoroughly assessed & reported the tax liability.
• See to it that the entity abides by the relevant rules and regulations.

Note that the FTA does not need a concrete reason to audit a company’s financial records. They can conduct audits if they feel a specific entity fails to meet certain requirements or carry out random checks. A company should be ready for such audits because the FTA allows only five days to respond to queries.

Additionally, companies also must determine accurate tax positions for standard-rated, zero-rated transactions and transactions beyond the scope of their business. Other key responsibilities include the following-

• Ensure that the system has detailed records of financial data till the duration that they have filed VAT returns.
• See to it that VAT returns are appropriately reconciled with applicable ledgers.
• Maintaining custom records with the relevant documentation to support them.

FTA Tax Audit Procedures

• FTA may implement risk-based selection criteria to determine the entities/individuals to be audited.
• The FTA may conduct tax audits at their physical office, the organization’s premises, or any other place where a company carries out business activities.
• Field audit notification – Suppose the FTA decides to conduct an audit at a company’s premises; they must inform the company about the audit five days in advance.
• 72 hours temporary closure – A tax auditor can order a taxpayer to shut down his business for a maximum of 72 hours with notice if-

1. The tax authorities have compelling evidence that the individual (whose accounts are being audited) is evading taxes.
2. A tax auditor feels that not shutting down the place of business temporarily will hamper the accuracy & efficiency of the tax audit.

• In circumstances where the authorities order a business to shut down temporarily, the tax auditor can order the closure with written permission from the DG (director-general).
• Cases requiring personal visits to residences must obtain permission from the public prosecutor.
• Suppose a business needs to be closed for over 72 hours (about 3 days). In that case, the tax auditor requires permission from a public prosecutor.
• Auditors can initiate legal action against the entity if they obtain an application from the DG.
• After the commencement of the tax audit, the business in question must produce the required information in the FTA-approved format. A VAT return is a box-wise summary, depending on the type of transactions like the aggregate data related to sales, purchases, input/output VAT, etc.

However, an FTA-authorized audit requires entities to produce invoice-level data.

Audited Person’s Rights

• Demand the tax auditors display their job-identification cards.
• Furnish a copy of the tax-audit notification.
• Attend the tax audit, which is conducted outside the FTA’s premises.
• Obtain copies of original documents or paperwork that FTA has seized.

FTA Tax Audit Completion

• Post-audit, the FTA will inform the taxpayer about the audit’s results within ten days (about one and a half weeks).
• If the FTA conducts an assessment, the taxpayer can view or obtain the documents that the FTA used to conduct the assessment.

Voluntary Disclosure

• The FTA encourages taxpayers to submit voluntary disclosures if they violate provisions or commit mistakes accidentally.
• Entities must adopt a proactive approach to blunders or debacles in order to avoid costly fines. A taxable entity must make a voluntary disclosure to notify the FTA about errors, tax return omissions, tax assessments, or tax refund applications.
• How can a company find errors/discrepancies in already filed tax returns? Businesses should conduct VAT audit reviews or health checks of previously filed tax returns. Entrust the responsibility of conducting a VAT audit review to a renowned tax agency because they will help your company rectify critical errors/omissions in your VAT returns. However, you must ensure that the tax agency in question is FTA approved.
• Following a streamlined approach like the one above will reduce the possibilities of errors and penalties when FTA conducts tax assessments. Moreover, these processes will ensure that your customers do not face any VAT-related problems. Your reputation will stay intact, and your business will flourish.

What Can NR Doshi & Partners Do For You?

NR Doshi & Partners is a renowned name in the UAE, with over 36 years of experience in various facets of financial services like VAT consulting, business setup, ESR advisory, advisory services, accounting and finance, outsourcing, CFO & most importantly, audit & assurance services.

Being in the business for so long, we understand the various aspects of auditing, like ensuring proper FTA compliance and maintaining accurate documentation. Our timely guidance and advice can help you avoid penalties and enhance your reputation. 

We are a registered entity authorized to conduct statutory audits for businesses to comply with the requirements stated by their management, free zones, banks, and regulatory bodies. Our logical approach relies on data analysis & verification to provide you with valuable insights while identifying risks & areas of improvement.

With strong ethics, integrity, objectivity, and professionalism over the years, we have completed over 9000 audits & formed long-term partnerships with thousands of clients. Beyond everything, we provide our clients with audit reports crucial for license renewal & other purposes. Call NR Doshi & Partners at +971 50 6591233 or email us at enquiries@nrdoshi.ae to schedule a consultation today.