As per the Tax Procedures Law (Federal Decree-Law no. 7), a tax audit is a process carried out by the Federal Tax Authority (FTA) to examine the commercial records or any information or data of the taxable persons conducting a business in the UAE. The FTA carries out the tax audit on a taxable person to ensure that the taxable person is complying with the provisions of the UAE VAT Law as well as the Tax Procedures Law. By conducting a tax audit the FTA ensures that the taxable person has paid all the liability and every tax due is collected and provided to the government within the given time-frame. Tax agents in the UAE who are registered with the Federal Tax Authority assist the companies with pre-audit and post-audit support to ensure VAT compliance. The companies should not approach the tax agents who are not registered with the FTA.
Jitendra Chartered Accountants (JCA) are registered VAT Consulting Firm that offers Tax Auditing Services in Dubai & across UAE. It is always advisable to be ready for FTA tax audit by hiring tax agents to conduct pre-tax auditing.
Process of TAX Audit by the Federal Tax Authority
The officials entrusted by the FTA are in charge of conducting a tax audit in the UAE. The FTA’s tax auditors will inspect the tax returns and other related information while conducting a tax audit in the UAE. As per the Tax Procedures Law, the FTA can carry out the tax audit for any reason at any time.
Even though the FTA doesn’t require a particular reason to conduct tax audits in the UAE, the Authority usually sends a notice to the taxable person or business at least five days before the scheduled date as per the Article 17 of Tax Procedures Law. According to Article 19 of the Tax Procedures Law, a tax audit is normally conducted during normal working hours of the FTA. Yet, the FTA Director-General can authorise tax audits outside the Authority’s working hours if it is an exceptional case.
The tax procedures law requires the company, their legal representatives and tax agents in Dubai, UAE to provide all possible assistance to the FTA tax auditors. The tax auditors can initiate a re-audit if they find some irregularities or suspicious information during the tax audit. To ensure compliance the companies can seek the advice of registered tax agents in Dubai, UAE.
Records to be Kept for Tax Audits in the UAE
The taxable entities are required to keep certain records to facilitate the tax audit. Article (78) of Federal Decree-Law on Value Added Tax mandates the tax registrants to keep the following records and present them to the tax auditor during the audit:
- Records of all supplies & imports
- Tax invoices and documents related to receiving goods & services
- All tax credit notes and documents received
- All tax invoices and documents issued
- Records of goods and services that were disposed of for matters unrelated to business and records showing tax paid to 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 along with Customs declarations and Supplier Invoices
Rights & Powers of Tax Auditors in the UAE
As per Chapter 2 of Federal Decree-Law no. 7 of 2017 on Tax Procedures and Title eight of Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures the tax auditors have the following rights and powers:
1. Right to Enter Premises
As per Article 18 of the Tax procedures Law, tax auditors in the UAE have the power to enter any place where the person subject to the audit performs the business, stores goods, or keeps records. If the need arises, the auditor can temporarily shut down the place in question for a period of up to 72 hours to perform the audit without prior notice if tax evasion is suspected or any potential hindrance to the tax audit is suspected.
2. Right to Obtain, Seize Assets
As per Article 18 of the Tax procedures Law, a tax auditor has every right to access the original records of copies of the records. The UAE tax auditor has the power to take samples of the stock, equipment or other assets from the place where the person subject to the audit conducts the business. The auditor has the right to seize the samples of stocks, equipment or assets if the need arises.
3. Right to Audit New Information
A tax auditor can audit any new information surfaced during the tax audit that may have an impact on the outcome of the Tax audit. However, this is conducted if the procedures are in accordance with the Tax procedures Law as well as the Executive Regulations of the Tax Law.
Major Things Reviewed During Tax Audit in the UAE
The taxable businesses are required to understand the major aspects that go under the FTA radar during a tax audit in the UAE. The following is a list of things that get reviewed during a UAE tax audit:
1. Accounting Software & System
Taxable companies are required to use proper accounting software to ensure compliance with the UAE VAT Law. Proper accounting software will help the companies reduce potential errors and discrepancies while filing VAT returns in the UAE. Proper accounting software should generate the reports and records as defined under Article 2 of the Tax procedures Law. The best VAT consultancy firms in Dubai assist the businesses in deploying the best accounting software.
2. Output Tax Review
The UAE tax auditors also check zero-rated, exempted & standard rated tax are calculated as per the UAE tax laws. They also make sure that the standard tax rates are applied on taxable supplies like 5% or Zero %. And goods that are eligible for zero-rated tax are charged as zero tax only with proper official and commercial evidence. They also check the records of the goods that are imported into the UAE, whether they have been recorded as per the reverse charge mechanism.
3. Input Tax Review
At the times of tax audit in the UAE, the input tax is subjected to review to see if expenses and purchases are eligible for tax calculation. The UAE tax auditors check the input credits are validly taken for 5% and 0% supplies and not taken for exempted supplies and certain specifically restricted input tax like entertainment services. At here, the tax auditor focuses on whether the taxable person has received the proper Tax Invoice with their TRN to ensure eligibility of input tax credits and other provisions. The tax agents in Dubai provide the necessary assistance for the businesses to prepare for the tax audit in this regard.
4. VAT Returns Review
The tax auditor will verify the submitted VAT returns with the accounting records to obtain assurance and the completeness of the records and the VAT returns. At here the VAT return filed must be checked by Tax Consultants in UAE before submitting to the federal tax authority to ensure compliance with the law. They check all the files to comply with the requirement of the tax authority. Consult with the best VAT Consultancy firms in Dubai to meet the requirements of the FTA during the tax audit.
Notification of the Tax Audit Results
The FTA will notify the businesses subject to Tax Audit about the final results of the Tax Audit within 10 business days from the completion of the audit as per Article 17 of the Tax procedures Law. The businesses that have been subjected to the tax audit in the UAE are allowed to view or obtain the documents and data on which the FTA based its assessment of Due Tax. This right of the businesses is enshrined in Article 17 of the Tax Procedures Law.
Always Hire FTA Registered Tax Agents
The FTA conducts the tax audit in the UAE to ensure that the tax registrants are complying with the VAT Law, Excise Tax Law and other tax regulations. Since the tax audit is conducted by the FTA, the businesses need the expert assistance of registered tax agents in Dubai such as Jitendra Chartered Accountants (JCA) who help them to prepare for the audit.
JCA is one of the most reputed VAT consultancy firms in Dubai with a team of FTA-registered Tax Agents. JCA assist the companies by providing them with pre-audit and post-audit support as well as support during the tax audit. JCA’s support ranges from transaction advisory to documentation support. JCA’s tax agents in Dubai highlight the risks, areas of exposure and non-compliance before and after the audit. JCA also advises the businesses on what actions they should take after the tax audit by the FTA.