Tax Audit is an independent review of various tax records, financial statements, and books of a company registered for tax purposes. Under UAE Law, all companies registered for tax purposes are legally required to maintain their books which can be verified by auditing firms approved by the Dubai government. These certified reports are submitted to the company’s board of directors. Most free zone authorities in the UAE now require the mandatory submission of audit reports. As the UAE has now introduced VAT laws, all companies registered for tax purposes are legally required to keep supporting documents of all accounting books in a state of inspection ready for inspection by the inspectors of the United Arab Emirates Federal Tax Authority.

Tax Verification in the United Arab Emirates

The Dubai Federal Tax Authority (FTA) usually invites the registered tax entity via notification to conduct the desired tax audit 5 business days before the scheduled start date. However, there are some exceptions if the auditor has reason to believe that prior notification would make the audit difficult or if he suspects tax evasion has occurred. In this case, no tax audit notification will be delivered. The notice generally explains the reason for the assessment, to which tax the audit refers, the tax summary, etc. The federal decree authorizes the auditor to enter any premises and close the business during the audit for 72 hours without notice if,

• FTA has enough evidence and reason to believe that an instance of tax evasion is under scrutiny.
• FTA has reason to believe that by not closing the premises the audit activity will be hampered.

Tax Audit in UAE

Tax Audit is often seen as a less regarded and under-understood area among customers in the UAE region. Therefore, it is imperative not only to raise awareness within business communities of its critical importance. But it is also recommended that all these companies undergo a pre-audit assessment of their entities so that they have a clear picture of where they are. This helps them understand their company’s exposure to any non-compliance in advance. And enables them to understand the causes of the non-compliance and take proactive corrective action and prevent further inconvenience.

At MASAR, we deal with a multitude of different companies and help them with their audit issues. And manage their tax transactions ensuring full compliance with VAT laws. As a result, we can offer practical solutions that help our valued customers with their compliance issues. We use a customer-friendly audit methodology during audit engagements focusing on those areas classified as high-risk.

Spectrum conducts tax audits to verify and report compliance with tax laws and regulations issued by the UAE Federal Tax Authority (FTA). The Federal Tax Administration also requires an audit report on Goods produced.

Imported or sold for a particular period based

Imported or sold for a particular period based on the following:

• Quantity and value of excise goods stored (by item) within the specified period.
• Average monthly sales for excise goods (by item) within the specified period.
• Average monthly inventory for excise goods (by item) within the specified period.
• Quantity of excise goods (by item) that were produced or imported.
• Excise goods that are produced, imported, released from designated zones, sold, or exported for a specified period:
• List of companies and retail stores that have been supplied with excise goods.

Importance of Tax Audit:

Companies in the UAE must prepare for official and mandatory audits. As it has been four years since VAT was implemented in the UAE. All laws and regulations for all types of businesses are clear and properly established. The provisions of the Federal Tax Law have given the Federal Tax Authority (FTA). The legal right to conduct a tax audit of any person to determine their compliance with the provisions of applicable law.

There is a misconception that filing a VAT return is the last compliance step in a tax period. Even if it is the first step toward VAT verification. Companies should review their already filed VAT returns and ensure that all tax positions chosen by the company are correct. That supporting documents are available, that the system is capturing all required data fields in the system. And that the company is preparing the VAT reconciliation statements. and accounting data for the next VAT Health Check.

TAX Verification process by the Federal Revenue Agency

FTA-appointed officials are tasked with conducting a tax audit in the UAE. FTA tax auditors will inspect tax returns and other related information while conducting a tax audit in the UAE. Under the Tax Procedures Act, the FTA can conduct a tax audit for any reason and at any time.

While the ALS does not require a particular reason for conducting tax audits in UAE. The Authority generally sends a notice to the taxable person or company at least five days before the date set out in Article 17 of the Tax Procedures Act. According to Article 19 of the Law on Tax Procedures. A tax audit is normally carried out during the normal working hours of the FTA. However, in exceptional cases, the Director-General of the FTA may authorize tax audits outside the Authority’s working hours.

The Tax Procedures Act requires the company, its legal representatives, and tax agents in Dubai, UAE. To provide all possible assistance to the FTA tax auditors. Tax auditors can initiate a new audit if they find irregularities or suspicious information during the tax audit. To ensure compliance, companies can seek advice from tax agents registered in Dubai, UAE.

Rights of FTA Tax Auditors in the UAE:

According to Chapter 2 of the federal decree-law n. 7 of 2017 on tax procedures. The eighth title of the Cabinet decision no. (36) of 2017 on the executive regulation of Federal Law No. (7) of 2017 on tax procedures. Tax auditors have the following rights and powers:

1. Right of access to premises:

Under Section 18 of the Tax Procedures Act. Tax auditors in UAE have the power to enter any location where the person being audited conducts business, holds property, or keeps records. If necessary, the auditor may temporarily close the relevant location for up to 72 hours. To conduct the audit without notice if tax evasion or potential obstacles to tax audit are suspected.

2. Right to obtain, and seize assets:

According to Article 18 of the Tax Procedures Act. A tax auditor has every right to access the original records or copies of the records. The UAE Tax Auditor has the power to sample inventory, equipment, or other. Assets from the place where the person being audited conducts business. The auditor has the right to seize samples of inventory, equipment, or assets as the need arises.

3. Right to Check for New Information:

A tax auditor can check any new information that emerges during the tax audit that could have an impact on the outcome of the tax audit. However, this is done if the procedures comply with the Tax Procedures Act. As well as the Tax Act Implementing Regulations.

How MASAR can help:

A VAT audit review by a registered tax agency (approved by the UAE Federal Tax Authority) can help you find all errors/errors/omissions on your VAT returns. To minimize the risk of fines and penalties in case of taxes: Assessment of FTA. It will also ensure that you don’t create VAT problems for your customers that could negatively impact your business relationship.

MASAR Tax Experts are providing tax health checks that bring together our knowledge and experience in tax matters and related internal controls. These health checks will aim to allow customers to take all necessary corrective actions before performing an audit and avoid penalties.