Ever since the implementation of Value Added Tax (VAT) in the UAE, paying taxes has become a usual activity for businesses and a part of their standard operating procedures (SOPs). However, compliance with the VAT regulations also includes preparing for the Tax Audit in UAE. It is basically a formal inspection conducted by the Federal Tax Authority, the official government entity responsible for administering, collecting, and enforcing federal taxes in the United Arab Emirates. Therefore, businesses need to be well-informed of the FTA audit checklist to avoid any legal actions.
The FTA, through tax audit in UAE, aims to verify whether an individual or organization is accurate and truthful towards their tax-related responsibilities and obligations and evaluates if they are dutifully keeping up with their tax commitments.
Need for FTA Audit Checklist
Since VAT is a self-assessed tax, businesses need to calculate the tax payable and recoverable input tax during a particular period, and duly report them to the FTA through VAT returns. The FTA then conducts a VAT audit to check if the submitted calculation is correct or not.
Now the question is what triggers a FTA Tax Audit in UAE? The answer includes the following factors:-
- The business size – depending on the volume and scale of business operations.
- The business type – businesses that are constantly subjected to customs and duty procedures, refund claims, and operate primarily on cash transactions
- Supply chain – if the customer or supplier of the business is subjected to an audit
- Public recommendation – if outsiders inform the FTA about the company’s noncompliance practice.
In addition, if in any case, FTA detects any irregularities in the payments, due taxes, and discrepancies on the returns, it can flag the company for an audit.
FTA Audit Checklist – For Business
The FTA sends a notice regarding tax audit to the company five business days in advance. This gives the company sufficient time to prepare for the audit. After receiving the notice, the company must take the following steps to prepare for the audit:-
Prepare all tax-related business documents
Business owners in the UAE are required to maintain several VAT-related records, such as –
- Tax invoices and documents related to purchased goods and services
- Records of supplies and imports
- Records of purchases in which input tax was not deducted
- Issued tax invoices
- Received tax credit notes
- Records of exported supplies
- Records of imports with customs declarations and supplier invoices
Business owners are also required to prepare their payroll documents, bank reconciliations, voucher approvals, reimbursement requests, grant reporting, and other external reports. However, they need to make sure that all the documents are well-organized for easy access for the auditors and to avoid misplacing any important ones.
Review the processes, systems, and documents of the company
Regardless of the accounting software or processes used by the organization, all of them must be meticulously reviewed before the audit. The company administrators must check whether they comply with all VAT accounting guidelines and laws and that there are no discrepancies or irregularities in the recorded transactions and reports. Further,review all tax calculations to confirm compliance with the UAE VAT laws. Most importantly, businesses must ensure that the basic tax rates of VAT are correctly applied and all the exempted and zero-rated goods are properly recorded.
Review the VAT returns
Reviewing VAT returns is a part of the audit and assurance process. It is the primary basis of the FTA tax audit in UAE. Hence, business owners must go through filed VAT returns to check for any discrepancies and correct them before the audit. Further, while reviewing the returns, check if all the details are mentioned in the right boxes and if all the requested information is filled in. Moreover, the returns must be filed within the timeframe provided by the FTA. The result of the review must be used to improve the company processes and be more prepared for future audits.
Prepare the staff and premises for audit
The company must work with its staff to compile, organize, and update all tax records and documents for the audit. Prepare the accounting team for the audit and make sure they are well-informed of the ins and outs of all company documents and procedures. Additionally, if the organization has a large accounting team, then the responsibilities must be equally assigned. This will not only simplify the whole process but also ensure that all information is accurate. In addition, if the audit is to take place on the business premises, then it must be well-arranged for the auditor’s visit.
FTA Audit Checklist – For tax authorities
The FTA conducts tax audits in the UAE to ensure compliance with tax laws and regulations. Here’s an overview of the process:-
- Audit notification – The FTA issues a notification to the taxpayer specifying the purpose, scope, and duration of the audit, including the documents and records required for the audit.
- Preparation – Upon receiving the notification, the taxpayer must gather all the relevant documents and records such as financial statements, invoices, contracts, tax returns, and other supporting documents related to their tax matters.
- On-site visit – The authorities will then conduct an on-site visit to the premises to review the records, and operations of the taxpayer. The visit may also include interviewing key staff, reviewing assets, and assessing the compliance of the entity with the tax laws.
- Data analysis – The FTA will analyze the data provided by the taxpayer to identify any potential inconsistencies or non-compliance issues in their financial and tax records using advanced software tools and techniques
- Queries and clarifications – If any discrepancy is detected during the audit, the authorities may raise queries and seek clarifications from the taxpayer. In return, the taxpayer is expected to respond promptly through satisfactory explanations or rectifications.
- Audit findings – After the audit is complete, the authorities will prepare an audit report summarizing their findings, along with the detected discrepancies and recommended actions or penalties.
- Assessment and Penalties – Further, based on their findings, the tax authorities may present a valuation report specifying the additional tax liabilities, penalties, and interest due by the taxpayer. The taxpayer has the right to object to their valuation and present their argument before the FTA.
- Objection and appeals – If the taxpayer is dissatisfied with the valuation report, they can file an objection with the FTA. The authorities will review the objection and make a decision accordingly. However, if the taxpayer is still dissatisfied, they can appeal further to the Tax Dispute Resolution Committee or the courts.
- Compliance actions – If the audit conducted by the FTA reveals significant non-compliance, then the company might be subject to additional compliance actions, such as fines, penalties, or further investigations. These actions by the FTA aim to enforce tax compliance and prevent future non-compliance.
Thus, businesses and individuals must ensure to keep proper records, comply with tax obligations, and cooperate fully with the tax authorities during the audit to ensure a smooth and efficient process.
Conclusion
On the whole, navigating the tax audit process can be challenging for businesses, but they can always consider working with tax consultants of Shuraa Tax who will prepare well for the audit. They will reduce the uncertainties for the company and its associates and make them ready to go through the process without any hesitation or panic.
To know more about our FTA audit checklist, send your questions to info@shuraatax.com.