VAT audits in the UAE are supervised by the Federal Tax Authority (FTA) to ensure that all the financial statements and documents provided by the companies are accurate and up-to-date. The audit can be conducted either at the company or any other location prescribed by the FTA with 5 business days advance notification. The authority randomly selects company for audit by taking into account factors such as business scale, late submission of documents, inaccurate or complex records. Businesses can ensure compliance with VAT laws and carry out a successful audit by hiring a Vat registration UAE partner by Farhat&co, who will take care of VAT returns, invoices, accounts and more. In this article we will discuss best practices for ensuring compliance and avoiding penalties during a VAT audit in the UAE.
Record-keeping
To carry out a successful VAT audit UAE, businesses that are taxable under VAT are required to maintain the following records to ensure compliance:
- Records of all supplies and Imports of Goods and Services.
- All Tax Invoices and alternative documents related to receiving Goods or Services.
- All Tax Credit Notes and alternative documents received.
- All Tax Invoices and alternative documents issued.
- All Tax Credit Notes and alternative documents issued.
- Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
- Records of Goods and Services purchased and for which the Input Tax was not deducted.
- Records of exported Goods and Services.
- Records of adjustments or corrections made to accounts or Tax Invoices.
- Records of any supplies of certain goods like oil, gas or hydrocarbons between registered businesses where the recipient intends to resell or use the goods for energy production purposes. This includes related declarations provided or received for such supplies.
- A VAT ledger containing details of output tax due, input tax due on goods imported for business, adjustments made, output tax recoverable and input tax recoverable.
For hassle-free VAT Services in UAE? Click here to send an inquiry.
Ensure Proper Invoicing and Documentation
Make certain all tax invoices and alternative documents include the requisite information as outlined by the Federal Tax Authority (FTA), including:
- Supplier name, address and tax registration number
- Recipient name and address
- Date of supply
- Description of goods/services
- Quantity/volume supplied
- Taxable value and tax rate
- Tax amount charged
- Gross amount payable
- Discounts or deductions
Tax invoices must be issued within 14 days of the supply taking place. Maintain thorough, logical, and chronological records of tax documents such as invoices and credit notes for 5 years in electronic form. Ensure electronic archives remain accessible for authorities to inspect as required by the Federal Tax Authority guidelines.
Conduct Regular Reviews and Internal Audits
Businesses operating in the UAE must undergo ongoing reviews and internal audits of their records as it will help them identify any inaccuracies beforehand. Moreover, these periodic checks will help businesses identify errors and omissions in the financial statements and help escape hefty penalties as a result of non compliance with VAT law. Reviewing once or twice in a year thus ensures that VAT processes run smoothly and also maintains the business reputation during the process of VAT audit in UAE.
Cooperate Fully with the FTA
The businesses should undergo full cooperation with the Federal Tax Authority during VAT Audit in UAE in order to run their business activities in a smooth and transparent manner. During the audit process the business must make sure to provide accurate account records and make visits to the sites, when requested by the authority. In case of noncompliance FTA might impose financial penalties which will also harm the brand reputation. By facilitating the process in a transparent manner will uphold the integrity of the company and will help the company in future endeavors as well.
Seek Professional Advice
It is advised that businesses unsure of VAT obligations or VAT audit in UAE seek guidance from a professional consultant. VAT consultant UAE can help businesses with ongoing compliance requirements and audit preparations. Our team also represents the company during VAT audit examination to ensure issues are properly addressed and that all your requirements are met and risks are minimized through specialized representation and compliance counseling.
Table 1: Penalties for Tax Evasion in UAE
| Violation | Penalty (AED) |
| Not maintaining financial records | 10,000 |
| Submission of Incorrect Tax return for the first time | 3,000 |
| Submission of Incorrect Tax return for repetition | 5,000 |
| Failure to facilitate the work of the Tax Auditor | 20,000 |
| Failure to submit a VAT registration application within the specified time frame | 20,000 |
Severe non-compliances may also result in the closure of a business and cancellation of trade license.
FAQs
Q: Does the audit take place at the business location?
A: VAT audit in UAE can take place at the business office location or any other location of FTA,s choice.
Q: Is the business informed about the audit?
A: Yes, FTA issues a 5 days advance notice in order to inform businesses about the audit process..
- Can businesses request documents from suppliers to validate input tax during an audit?
- Yes, FTA advises businesses to obtain supplier invoices and documents clearly mentioning VAT registration details and amounts to substantiate input tax claims during an audit.
Conclusion
In order to ensure VAT compliance and to help avoid administrative penalties businesses operating in the UAE must carry out VAT audits in the UAE in an accurate and transparent manner. By conducting regular reviews, designating audit contacts, cooperating fully with the FTA, and seeking expert advice to contact Vat Consultant UAE when needed, businesses can feel confident when facing a VAT examination. Proper preparation for a potential audit ensures compliance and helps businesses avoid issues later on.
