Tax Audit in UAE – Know the procedure and how to be prepared for audit
The UAE government has already implemented VAT on the supply of taxable goods and services starting from January 01, 2018. The companies that are required to pay taxes can be audited by the Federal Tax Authority (FTA) to determine their tax compliance. It’s time to get familiar with the terminology to keep up with the era of the tax system in the UAE.
What is a Tax Audit?
A tax audit is basically a government’s assessment of a company about their responsibility as a taxable entity. This kind of audit is conducted by the FTA to ensure that every liability is paid and every tax due is collected and given to the government within the timeframe given. The government also assesses a company whether they are following certain responsibilities that apply to their business as per the tax laws (VAT Law, Excise Tax Law, etc.).
The FTA authorities will check the returns and other details. There need not be a specific reason for the FTA to conduct an audit of a company. They can conduct it for any reason or whenever they want. A notice will be issued to the company, at least five days before the scheduled audit date. It will contain details, such as the audit schedule, place, involved parties, reason (if anything particular), etc. The auditor/s and the company will meet at the scheduled place at the scheduled time and the process will begin. The auditor may ask for business records, in original and/or copies, and take samples of goods and other assets as available at the place at the time.
Note: The audited party has the right to ask for the credentials, such as professional identification cards, from the tax auditors in order to determine their authority.
The tax audit is required to be conducted during the official FTA working hours, unless the Director-General decides to conduct the audit of a business outside regular hours, in an exceptional case. The Company subject to a tax audit, along with their legal representatives and tax agents, are required to provide full assistance to the auditors performing their task. If anything suspicious is found in the result of the audit that might impact the tax return, the authority may order a re-audit for further analysis. The audited person has the right to ask for the notification copy and related documents and be present during the auditing procedures that are conducted outside of the official places.
What Can You Do to Be Prepared for the Audit?
A tax consultant can help you to be always organised so that when your company is requested for an audit from FTA, you are all set up to face the tax audit that people seem to be worried about.
The list below shows the kinds of review that can be done in order to prepare you for an upcoming audit:
Review of the system
Since tax has been announced to commence in the UAE on the first day of 2018, companies have ensured that every department is ready to face a new era. One of the most important items to be updated is the accounting software. Same should comply with the laws regarding VAT accounting.
A review of the systems will ensure that there is no inconsistency with the recorded transactions.
Review of Calculations Tax
It is important that companies ensure that they are complying with the laws by checking that the calculation of both output and input taxes are correct. As a basic rule, the tax rate is at 5% only. Any goods or services that fall under zero-rated and exempted tax should be treated as it is with documents for support.
Review of VAT Returns
A tax consultant will review the VAT returns that need to be filed by companies to ensure that returns will be prepared in the correct manner with the values properly recorded in the right boxes and the needed information are filled in and also make sure that it is filed within the time frame provided by FTA.
Review of Payment of Tax Due
The correct amount of tax due should be paid on or before the due date. A tax consultant will ensure that you are not drawing any negative attention from FTA by missing the time frame of tax payment to the government.