With VAT only introduced in the UAE less than two years ago, there have been many phases of clarifications and updates since it was officially introduced in January 2018. This is common practice to make sure the law is clear, within one year alone, more than 12 clarifications have been published by the Federal Tax Authority.

There are still many questions from companies, specifically SME’s with regards to Tax Audits; should you worry? What can be done to prepare for a tax audit? What actually is a tax audit?

What is a Tax Audit?

An official tax audit is undertaken by the Federal Tax Authority where they review all financial records of a UAE company. These audits are done to ensure that a company is legally compliant.

What should you know about a Tax Audit?

• When a Tax Audit is conducted, the FTA can either undertake the audit on any premises owned by the company being audited.
• The FTA have the right to obtain any documentation (either originals or copies) the see viable to verify company stock or assets.
• When a Tax Audit is taking place, the person in charge of the audit from the company side must assist the Tax Auditor with any of their requirements. As per Cabinet Resolution No (40) of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE, it is an offense to not facilitate the work of the Tax Auditor and failure to comply can incur a penalty of AED 20,000.
• As per Tax procedures law, a Tax Auditor must provide notice of 5 working days prior to the official audit taking place. However, if the FTA has grounds to believe that the company subject to a Tax Audit is involved in tax evasion the Tax Auditor can legally enter the business premises and temporarily close the company for a period of a maximum of 72 hours, without prior notice.

Is a Tax Audit likely?

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 means that a taxable company will be audited at least once within 5 years therefore it is imperative that you are prepared.

Top tips to prepare for a Tax Audit

• Ensure you are up to date with the guidelines issued by FTA
• Look into options for using a registered tax auditor, which is recommended as they are fully aware of what is required
• Do a pre-audit check to give yourself time to correct any errors prior to the official audit by the FTA
• Perform a reconciliation between accounts and VAT return frequently

Information in this blog has been obtained by Premier Brains Accounting & Auditing. – qualified finance professionals and business advisors. For more information on VAT in the UAE, contact Jess Ashford on (Dubai) +971 (0)4 456 1761, (Abu Dhabi) +971 (0)2 448 5120.