VAT Audit in the UAE: The government of UAE already applied VAT on the supply of taxable goods and services from 01 January 2018. Companies that are required to pay taxes may be audited by the Federal Tax Authority (FTA) to determine their tax compliance. It’s time to familiarize yourself with the terminology to keep up to date with the tax system in the UAE.
What is a TAX Audit in UAE?
VAT Audit in the UAE: A tax audit assesses a company’s liability to the government as a taxable entity. This type of audit is conducted by the Federal Tax Authority (FTA) to ensure that every obligation is paid and every tax due is collected and paid to the government within the given time. The government assesses whether a company is complying with certain obligations that apply to its business under tax law Value Added Tax (VAT), Excise Tax law, etc.
Detailed Procedure:
Federal Tax Authority (FTA) officials will check the return and other details. No specific reason is required for Federal Tax Authority (FTA) to audit the company. They can do it for any reason or whenever they want. At least five days before the date of the scheduled audit a notice shall be issued to the company. It will contain details, such as schedule, place, parties involved, reason (if any), etc. The auditors and the company will meet at the appointed date and also establish a place and the process will begin. The auditors may ask for the business records in original and or copies and may take samples of equipment and other assets as available at the location.
Note: The audited party has the right to ask the tax auditors for credentials, such as professional identification cards, to establish their authority.
Tax audits must be conducted during the official working hour of the FTA, unless the Director General, in exceptional circumstances, decides to audit a business outside regular hours. A Company subject to a tax audit, along with its legal representatives and tax agents, is required to provide full assistance to the auditors performing their duties. If in the result of audits anything doubtful may affect the tax return, the authority may order a re-audit for further analysis. The audited person has the right to ask for a copy of the notification and related documents and to be present during the audit procedure conducted outside the official premises.
What do we do to prepare for the VAT Audit in the UAE?
A tax consultant can help you stay organized so that when your company is requested to be audited by the FTA, you are prepared to face the tax audit that people are worried about.
The list below shows the type of reviews that can be done to prepare you for an upcoming audit.
System Review:
As UAE taxes are announced from the first day of 2018, companies have ensured that every sector is ready to face a new era. One of the most important items to update is accounting software. Similarly, the rules related to VAT accounting should be complied with.
A review of the system will ensure that there are no discrepancies in recorded transactions.
Review of Calculation tax:
The companies must make sure that they are compliant with the rules by checking that both output and input taxes are calculated correctly. According to basic rules, the rate of tax is only 5%. Any goods or services that are zero-rated and exempted from tax should be treated in the same way as supporting documents.
Review of VAT RETURN:
A tax consultant will review the VAT returns that companies are required to file to ensure that the returns are prepared correctly with the correct values entered in the correct boxes and the required information is filled in and will also ensure that it is filed within the time frame provided by the Federal Tax Authority (FTA).
Review of Payment of Tax Due:
The right amount of the tax due must be paid on/before the due date and also a tax consultant will make sure that you are not attracting any negative attention from FTA by missing the time frame for paying taxes to the government.
5 Conditions that lead to FTA’s VAT Audit in the UAE:
How to prepare for a VAT audit in UAE?
A VAT audit in the UAE is conducted by the Federal Tax Authority (FTA) to guess the VAT liability and review the records maintained by the taxable person to make sure that they comply with the provisions of the UAE VAT Law.
Federal Tax Authority has started the process of Vat audit in UAE in which the authority will ask businesses to submit information which will be verified by submitting Vat returns. Also, the authority may review relevant supporting documents such as tax invoices, credit notes, export documents, contracts, etc. to make sure of compliance with UAE VAT law.
FTA may select any business or taxable person for VAT audit in the UAE based on various factors observed through procedures such as review of submitted VAT returns, VAT refunds, the Application process, Voluntary disclosures submitted, Explanations provided, etc. OR even when the authority receives or indicates a sufficient reason to believe that a tax audit is necessary on a taxable person.
Therefore, the FTA may initiate a VAT audit in the UAE when it has reason to believe that a taxable person needs to be audited.
How should we prepare for the VAT audit in the UAE?
Accounting system:
One of the main areas of the audit will be the review of the accounting system. The accounting system should be able to generate and record tax invoices and credit notes. Also, it needs to be ensured that documents can be maintained for at least 5 years or 15 years. The accounting system should also be able to generate VAT returns, reports, and documents.
• Proper VAT Returns:
Timely submission of VAT returns is required on or before the 28th day following the tax period. Further, all transactions must be classified and properly recorded. Also, make sure that there are no errors while submitting the return. If any payable value is missed then adjust in subsequent return and make a timely voluntary disclosure if payable is more than AED: 10,000/-
• Proper Documents:
Ensure that appropriate tax invoices are issued for taxes, Credit notes and make sure that there is an appropriate reason and reference number and that they meet all the requirements of article 60 of Cabinet Decision no 52 of the Executive regulation of 2017.
• Proper reporting of Output tax:
Ensure that all standard-rated transactions are taxed by the requirements of the UAE VAT law. Ensure that the export of goods is supported with appropriate supporting documents. If no documents are available then ensure to get them or charge tax at the standard rate.
• Proper claiming of Input Tax:
Ensure that the input is claimed correctly, and the tax receipts received are by the provisions of the law. Particular care should be taken to comply with provisions relating to the receipt of input on entertainment-related expenses or personal expenses.
5 Situations that lead to a VAT audit from FTA in the UAE
Not all businesses are initiated unless there is a reason to make a decision or initiate a tax audit. Some of the reasons for the authority to do so may be any of those listed below.
• Late VAT Registration:
If you fail to apply for VAT registration within the time specified by the VAT law, this may lead to a future tax audit.
• VAT de-registration:
To make sure that the company has deregistered on proper grounds and applied for deregistration within the period specified in the law, the authority may initiate a tax audit.
• Incorrect tax return:
If an incorrect amount of tax or tax has been collected incorrectly, it can lead to errors in tax returns.
• Failure in Issue of Proper Tax Invoices and Other Supporting Documents:
If the taxable person fails to issue a tax invoice as per the provisions of law and fails to furnish any such relevant information about the transaction.
• Tax Evasion:
If a taxable person deliberately understates his tax payable or does not disclose all income in the VAT return, he may be subject to an FTA audit if the authority so finds. Once a VAT audit has commenced in the UAE, the taxable person must provide all relevant information to the FTA. If the authority finds any missing documents or tax evasion, it can impose a penalty.
Relevant documents required for the VAT audit in the UAE?
1. All tax receipts collected for the supply of goods and services.
2. All tax credit notes issued and received for the supply of goods and services.
3. All tax invoices received for which input has been claimed.
4. Supporting documents for export of goods.
5. Records of importation of goods into the UAE, such as customs declarations.
Further, the Federal Tax Authority may request any such records or documents other than those specified in the above list.
As discussed above it will be important for a taxable person or business to be prepared for a Vat audit in the UAE and ensure VAT compliance. It is also recommended to adopt or practice policies to conduct an audit with the help of a tax agent like us where we will review your transactions and supporting documents to identify non-compliance and rectify the same. You can be guided. The service we offer for this is a Pre-Tax Audit or VAT Compliance Review.
Fanavi Accounting and Bookkeeping is providing tax-related assistance all over UAE. We are happy to assist and guide your company with any of the above requirements. Our tax professionals are highly qualified and well versed in UAE tax law along with the practical implementation of VAT in UAE. We understand that every business is different. Therefore, each of our services is tailored to your business needs.
Related Links
Exempt Supplies in the UAE | VAT on consultancy services | VAT on Free zone companies | VAT Registration in the UAE | VAT on Export from UAE to GCC Countries | Audit Services