Value Added Tax was implemented in UAE on 01 January 2018. Being new legislation it has gone through the phases of publications, implementation and clarifications, and all these have helped make the law more clear. However, it’s a common practice that after the first year of implementation, companies go back to normal business practices without dedicating time in staying abreast with changes that come with the maturity of the law. During last one year, more than 12 clarifications were published by Federal Tax Authority and many updates on portal and FTA website with these changes.

Now the question arises, what is “Tax Audit”?

Why worry for a Tax Audit?

What can be done to prepare for a Tax Audit?

What Is A Tax Audit?

A tax audit is a procedure undertaken by the Federal Tax Authority (“FTA”) to inspect the commercial records or any information or data related to a Person carrying on Business in UAE. The purposes can be many but more importantly is to ensure compliance with the law, proper disclosures, proper business practices, control over errors and correction of errors if found, etc.

What are the powers of Tax Auditor?

When a Tax Audit is undertaken, FTA has the powers to conduct such an audit at its office or the place of business of the Person been audited or any other place where such business stores goods or keeps records.

As per Tax procedures law, a Tax Auditor is expected to give a 5 working days notice before a tax audit is undertaken. However, as an exception to this rule, article 17(3) of Tax procedure law given power to the Tax Auditor to enter the business premises and can temporarily close the business (in order to perform the Tax Audit) for a period not exceeding 72 hours without prior notice if

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• If FTA has enough grounds to believe that the Person subject to the Tax Audit is participating or involved in Tax Evasion.

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• If FTA has enough reasons to believe that not temporarily closing the place where the Tax Audit is conducted will hinder the conduct of the Tax Audit.

During a Tax Audit, the authority will have the right to obtain any records (original or copy), verify stock or assets of the business where the audit is proceeding or even seize them for the purposes of audit.

It is the duty of the Person subject to a Tax Audit, to facilitate and assist Tax Auditor to enable him to perform his duties. As per Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE, the failure of the Person conducting Business to facilitate the work of the Tax Auditor may subject the Company to a penalty of AED 20,000. However, this penalty does not mean that no more actions can be taken but this will be an additional penalty, which may also create circumstances for self-assessment by tax authorities.

How likely a chance of a Tax Audit?

As per Article 3 of Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures, every taxable person is required to keep tax records for at least 5 years and even more years in certain specific cases. This may also mean that a taxable person is expected to be tax audited once in this span of 5 years and it is possible that it may start from the first tax return filed. So not keeping itself ready on the notion that it will not be audited, is not advisable.

Top tips to prepare for a Tax Audit

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• Be updated – Stay updated with the clarifications and guidelines issued by FTA

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• Its always better to conduct Tax audit review for the company by tax expert (whether internally or seeking external assistance) to ensure that the company is ready to face FTA audit

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• Pre-audit check by a tax expert also helps in correcting any errors before FTA comes and audits.

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• Perform frequent reconciliation between accounts and VAT return

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• Focus on risk areas such as accounts payable, proper documentation, exports evidence, stock reconciliation

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.

If you’d like to learn more about VAT services in Dubai & UAE, reach out to the Premier Brains team to get a free initial consultation.