VAT/FTA Audit in UAE
An FTA/ VAT audit occurs when the FTA finds potential errors in your tax return. Usually, the
FTA schedules audits for tax returns that were filed in the last five years it may vary for business dealing with real estates etc. For substantial errors, the FTA might go further back.
Several factors can trigger an FTA audit. If you take several deductions, claim losses for
multiple years in a row, or report high income levels, these are all risk factors for an FTA
audit. If you’re chosen for an FTA audit, you’ll be notified in writing. There are two types
of FTA audits—correspondence and field audits.
A correspondence audit—the more common kind—is when the FTA sends you a letter
describing the possible errors in your tax return. You can reply with documentation to
support your position. Field audits are when you meet an FTA examiner at your place of
business, accountant’s office, or local FTA office. The examiner will look through your
financial records and books to see if they match up with the tax return and comply with
The chance of being selected for an FTA audit is extremely low for most
types of businesses. However, if you are selected, you should have your accountant,
tax professional, or business attorney present during the audit.
Tax Audit Procedure
The FTA will usually inform the taxable person in the question of tax audit 5 business days in advance. However, in certain exceptional cases like suspected tax evasion, or if there is a reason to believe that notifying would hinder the conduct of the audit, no notice of tax audit will be given.
Tax Audit will be conducted at the taxable person’s place of businesses or in some cases at FTA’s office. If the audit takes place at the taxable person’s place of business, it will usually be during the FTA’s normal business hours.
The businesses which are subject to an audit (including their tax agent, or legal representative), must facilitate and provide the required assistance to the tax auditor to carry out the audit in a smoother manner. The following are some of the actions that the taxpayer should ensure on the receiving the tax audit notice.
- 1. Relevant premises are accessible;
- 2. Tax records such as books of accounts, Tax invoices etc. are accessible for examination
- 3. Relevant staff are present (for example the person responsible for compiling the tax return
- 4. Original copies of documents or invoices
In the event of failure to provide the required records or assistance in conducting the tax audit, applicable penalties may be levied on the taxpayer.
On completion of the audit, the FTA will communicate the results of the audit to the taxable person. If the conclusion of the audit leads to the determination of any of the following cases, then tax assessment will be issued.
- Failing to apply for registration within the timeframe specified by the VAT Law.
- Failing to submit a Tax return within the timeframe specified by the VAT Law.
- Failing to settle the payable tax stated as such on the Vax return that was submitted within the time limit specified by the Tax Law.
- Submitting an incorrect VAT return.
- The Registrant failing to account for Tax on behalf of another person when he is obligated to do so under the Tax Law
- The shortfall in VAT payable as a result of a tax evasion
Also, there could also be administrative penalties levied on the taxpayers if the findings lead to those instances specified in the law
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