Tax Audit

Tax Audit Services in Dubai, UAE

A Tax audit is a formal examination conducted by the Federal Tax Authority (FTA) to verify information or uncover fraud and inaccurate tax returns. The FTA can select tax returns to examine both randomly and intentionally. The Tax Procedures Law (Federal Decree-Law no. 7), issued by the Ministry of Finance defines Tax Audit as a procedure undertaken by the Authority to inspect the commercial records or any information or data related to a Person conducting Business.

FTA may perform the Tax Audit at its office or the place of business of the Person subject to the Tax Audit or any other place where such Person conducts Business, store goods or keep records.

It is basically a formal examination of the company’s VAT Ledgers, Sales and Purchases Ledgers Trial balance reconciliation with standard rated sales, Zero rated sales, Out of scope and Exempted Sales and physical inspection of Purchase Tax Invoices and Sales Tax invoices for the Tax period. This ensures that all liabilities are cleared and every tax due is collected and given to the government during the specified timeframe.

VAT returns are needed to be filed by companies, must be prepared in the correct manner  and recorded properly with the right values in the right boxes. Tax Agents in UAE can help you on it and get it done within the specified time limit.

Most importantly, the tax due must be paid and cleared off on or before the specified due date. If you have already employed an approved tax agent, he will ensure entity’s VAT Compliance, as per FTA guidelines (that your dealings are made valid and legitimate and you carry out a safe and clean business.)

Preparing for Tax Audit

The company can eliminate the fear of Tax Audit by planning and organising the accounting and return filing with the help of a tax consultant. Following the guidelines of professional consultants will boost the confidence of the businesses to face the UAE tax audit.

Below are some of the tips to prepare the businesses for tax audits in the UAE.

1. Review of the System

Since the tax auditors examine all the tax-related transactions, the businesses need to ensure that there is no inconsistency in any records. With the help of experienced tax consultants in Dubai, UAE the businesses can review their systems to ensure that the transactions are being recorded properly.

2. Review of Calculations Tax

The businesses need to focus on the calculations of both output and input tax in order to ensure that they are complying with the UAE VAT laws. Consultant will ensure that you are on the right side of the UAE VAT Law.

3. Review of VAT Returns

The VAT-registered businesses are required to file the VAT return online through the FTA portal. The VAT return filing involves the online submission of values of sales, purchase, output VAT, and input VAT, etc. in the appropriate boxes of VAT return form in the FTA portal. With the help of the best consultants, the businesses can ensure that the returns are filed in the proper manner.

Corrective Actions

Following can be the outcomes for VAT audit in UAE by approved Tax Agents before FTA audit notification.

  1. Accounting Archiving Report and Accounting Data adjustment report will be issued to the entity’s management with observations and corrective actions.
  2. If there is a need to make adjustments in the tax periods, Voluntary disclosures will be prepared and submitted to FTA.
  3. If VAT impact is below the Voluntary disclosure requirement, Adjustment will be done in the next tax period.

Advantages of engaging consultant

  1. Companies that are VAT compliant as per FTA guidelines will have no chances for  fine / penalty by the FTA.
  2. Company will be well prepared for the FTA Audit.
  3. Management can  clarify their doubts regarding VAT filing and FTA guidelines during the audit period .

A tax audit is basically a government’s assessment of a company about their responsibility as a taxable entity. This audit is conducted by the FTA to ensure that every liability is paid and every tax due is collected and given to the government within the timeframe given. The government also assesses a company whether they are following the responsibilities that apply to their business as per the tax laws. The auditor may ask for business records, in original and/or copies, and take samples of goods and other assets as available at the place at the time.

FTA audit procedure

  • Notice of Audit:- A notice will be issued to the company, at least five days before the scheduled audit date. It will contain details, such as the audit schedule, place, involved parties, reason (if anything particular), etc. The auditor/s and the company will meet at the scheduled place at the scheduled time and the process will begin.
      • Means of Notification and Correspondence by the Authority – by Post, Registered post, By electronic mail to the address provided by the Person being notified, Posting on the premises of the Taxable Person or Any other means as may be agreed by the Person and the Authority.
      • Any notice of a Tax Audit sent by the Authority shall state the possible consequences of obstructing the Tax Auditor in the exercise of his duty.
      • Where a Tax Auditor is assigned to carry out a Tax Audit according to Clause (4) of Article (17) of this Law, he shall provide a notice in writing at the beginning of the Tax Audit to the following;
      1. The occupational tenant of the Premises if he is present at the time of beginning the Tax Audit.
      2. The Person who appears to be in charge of the Premises if he is present and the occupational tenant is not present.
      3. In any other case, the notice shall be posted in a prominent place on the Premises.
  • Right to Conduct Tax Audit: The tax audit is required to be conducted during the official FTA working hours, unless the Director-General decides to conduct the audit of a business outside regular hours, in an exceptional case.
    • For the purposes of conducting a Tax Audit, the Authority may inspect the Premises, the Documents available at the Premises, the Assets that are available at the Premises & the accounting systems used by the Person subject to Tax Audit.
    • For the purposes of implementing provisions of Clause (4) of Article (17) of this Law, the Tax Auditor shall obtain the prior written consent of the Director-General, as well as a permit from the Public Prosecutor to be able to enter the part of the Premises where the Premises or parts thereof are used as a dwelling.
    • For the purposes of implementing Clause (1) of this Article, the occupational tenant of the Premises, or in the absence of the occupational tenant, any Person the Authority considers as having control over the Premises, shall provide the Authority with all reasonable facilities necessary for the effective exercise of its powers under this Article.
    • Any other official of the Authority whom a Tax Auditor considers necessary for the effective exercise of his powers under this Decision may accompany the Tax Auditor to any Premises.
    • A Tax Auditor carrying out a Tax Audit at the Premises of a Person based on permission of the public prosecutor according to Article (12) of this Decision, shall present the permit issued by the Authority as well as the permit obtained from the public prosecutor, in addition to the proof of identity every time he is requested to do so.
      • The Company subject to a tax audit, along with their legal representatives and tax agents, are required to provide full assistance to the auditors performing their task.
      • If anything suspicious is found in the result of the audit that might impact the tax return, the authority may order a re-audit for further analysis.
      • The audited party has the right to ask for the credentials, such as professional identification cards, from the tax auditors in order to determine their authority.
      • The audited person has the right to ask for the notification copy and related documents and be present during the auditing procedures that are conducted outside of the official places.

As per Article (78) of  Federal Decree-Law. Records to Be Maintained for a Tax Audit are:

      • Records of all supplies and Imports of Goods and Services.
      • All Tax Invoices and alternative documents related to receiving Goods or Services.
      • All Tax Credit Notes and alternative documents received.
      • All Tax Invoices and alternative documents issued.
      • All Tax Credit Notes and alternative documents issued.
      • Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for 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 to the state along with Customs declarations and Supplier Invoices.

This list is not exhaustive one but just superficial, FTA can demand any further document as they may deem fit during the course of an audit to ascertain the tax obligations

Federal Tax Authority, the ultimate constitution responsible for collection and management of federal taxes is renowned inefficiently deterring non-compliance from the part of taxpayers. Various laws and regulations issued by Ministry levy severe penalties, including prison sentences and other monetary penalties if a registrant is found guilty of non-compliance.

To avoid falling under the prospect of non-compliance of VAT, it is always better to conduct a Tax Audit review or a VAT health check-up in your organization. A VAT Audit review targets in finding out disparities in your organizational tax policies and appropriate procedures as per UAE tax laws. It is prudent to say that Tax Audit review is rather a necessity than an option since it’ll reinforce your organization to face a VAT Audit.

VAT Audit review will help you in understanding the causes of non-compliance and address them for the past and the future. It will help you in identifying the areas which require rectification while assuring the accuracy of taxes actually remitted. FTA has set various options for taxpayers to rectify their mistakes before undertaking an assessment such as filing a Voluntary Disclosure or a Reconsideration form as the case requires.

1. Ensure VAT Compliance

The audit will facilitate a review of previously reported VAT returns with the intention of identifying any errors, thereby avoiding the risk of non-compliances being found by the Tax Authority itself, which can result in higher penalties for companies. Identification of errors or non-compliances at an earlier stage is essential as it allows companies to take appropriate corrective measures (such as a Voluntary Disclosure scheme where applicable) which can save the company from a higher penalty burden in the eventuality of an official tax audit by the Authority.

2. Facilitates Cost Saving

Due diligence checks will decrease the risk of inadvertent double payment of VAT, incorrect VAT being charged by the suppliers, etc, and further assist in reducing exposure to penalties from the Tax Authority.

3. Helps Prepare for Future

Businesses will be prepared to face official tax audits by having all the required details ready on hand and avoid errors which may happen due to last-minute hastiness.

4. Support the Economy of the Country

As compliance is thoroughly examined, the chances of fraud to be conducted by the business are greatly reduced.

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