Tax Audit in Dubai, UAE - Know the procedure and how to be prepared for audit in Dubai, UAE
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In the United Arab Emirates (UAE), value-added tax (VAT) has been in effect for the supply of taxable goods and services since January 1, 2018. To ensure compliance with tax laws, the Federal Tax Authority (FTA) may conduct audits of companies that are required to pay taxes. It is important for businesses to understand and familiarize themselves with the terminology and procedures related to the tax system in the UAE.
What is a Tax Audit in Dubai, UAE?
A tax audit is a government review of a company’s compliance with their responsibilities as a taxable entity. The Federal Tax Authority (FTA) in the United Arab Emirates (UAE) conducts tax audits to verify that all tax liabilities are paid and that all taxes owed are properly collected and submitted to the government within the required timeframe. The government also evaluates whether a company is following the responsibilities related to their business as outlined in tax laws such as the VAT Law and the Excise Tax Law.
What is VAT Audit Procedure in Dubai, UAE?
In the United Arab Emirates (UAE), the Federal Tax Authority (FTA) is responsible for conducting tax audits to ensure compliance with tax laws. Officials from the FTA are assigned the task of performing tax audits in the UAE, during which they will review tax returns and any necessary supporting documents. According to the Tax Procedures Law, the FTA has the authority to conduct a tax audit at any time for any reason. Tax audits must be conducted during official FTA working hours, unless the Director-General determines that an exceptional circumstance warrants an audit outside of regular hours. Companies undergoing a tax audit, along with their legal representatives and tax agents, are required to provide full assistance to the auditors during the audit process. If the audit reveals anything suspicious that may impact the tax return, the FTA may order a re-audit for further review. The company being audited has the right to request a copy of the notification and related documents and to be present during any auditing procedures that take place outside of official locations.
Records to be Kept for Tax Audits in the UAE
In order to facilitate tax audits in the United Arab Emirates (UAE), taxable businesses are required to keep the following records and present them to the tax auditor during an audit, as mandated by Article 78 of the Federal Decree-Law on Value-Added Tax:
- Records of all supplies and imports
- Tax invoices and documents related to receiving goods and services
- All tax credit notes and documents received
- All tax invoices and documents issued
- Records of goods and services that were disposed of for non-business purposes and records showing tax paid on those items
- Records of goods and services purchased for which input tax was not deducted
- Records of exported goods and services
- Records of adjustments or corrections made to accounts or tax invoices
- Details of imported goods along with customs declarations and supplier invoices
Major Things Reviewed During Tax Audit in the UAE
During a tax audit in the United Arab Emirates (UAE), the Federal Tax Authority (FTA) will review several key aspects of a taxable business to ensure compliance with tax laws. The following are some of the things that may be reviewed during a UAE tax audit:
- Accounting software and system: Taxable companies are required to use proper accounting software to ensure compliance with the UAE VAT Law. This software should help reduce potential errors and discrepancies while filing VAT returns, and it should generate reports and records as defined under Article 2 of the Tax Procedures Law. VAT consultancy firms in Dubai can assist businesses in choosing the best accounting software.
- Output tax: The FTA will review zero-rated, exempted, and standard-rated tax calculations to ensure they are in compliance with UAE tax laws. They will also verify that the correct tax rates (such as 5% or 0%) are applied to taxable supplies, and that goods that are eligible for zero-rated tax are charged as zero tax with proper official and commercial evidence. The FTA will also review the records of goods imported into the UAE to ensure they have been recorded properly under the reverse charge mechanism.
- Input tax: During a tax audit, the FTA will review input tax to verify that expenses and purchases are eligible for tax calculation. They will check that input credits are validly taken for 5% and 0% supplies, and not taken for exempted supplies or certain specifically restricted input tax, such as entertainment services. The FTA will focus on whether the taxable person has received the proper tax invoice with their TRN to ensure the eligibility of input tax credits and other
- During a tax audit in the United Arab Emirates (UAE), the Federal Tax Authority (FTA) will review VAT returns to ensure their accuracy and completeness. This involves comparing the submitted VAT returns with the business’s accounting records. It is important for businesses to have their VAT returns checked by tax consultants in the UAE before submitting them to the FTA to ensure compliance with the law. The FTA will review all relevant documents to ensure compliance with their requirements. It is advisable for businesses to seek guidance from experienced VAT consultancy firms in Dubai to ensure compliance with the FTA’s requirements during a tax audit.
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