How to Prepare for a UAE Value Added Tax (VAT) Audit | UAE

Navigating a VAT audit can seem like a daunting task for many businesses. However, with the right preparation and understanding of the audit process, you can ensure a smooth and efficient experience. This article will guide you through the essentials of preparing for a VAT audit in the UAE, helping you minimize risks and maximize compliance. 

What is a VAT Audit? 

A VAT audit is a comprehensive review conducted by the Federal Tax Authority (FTA) to verify the accuracy of VAT declared, paid, and reclaimed by a business. The audit process involves scrutinizing records, returns, and other relevant documents to ensure that VAT obligations are met and that all taxes due are settled within the stipulated timeframe. The FTA’s primary aim is to confirm that businesses are fully compliant with VAT regulations and to identify any discrepancies that may require correction. 

During a VAT audit, the FTA may request various business documents. These will be compared against the details declared in VAT returns or any other declarations made to the FTA. 

When Does the FTA Conduct a VAT Audit? 

Initially, the VAT Decree Law allowed the FTA to conduct an audit within five years from the end of the relevant tax period. However, effective from January 1, 2023, Article 79bis of the UAE VAT Decree-Law extends this period by an additional four years, allowing the FTA to potentially review records up to nine years old. 

The FTA can issue a VAT audit notice without prior reason. This notice, which is sent at least five days before the scheduled audit date, includes details such as the audit schedule, location, involved parties, and specific reasons for the audit, if applicable. The audit process typically begins with a meeting between the auditors and the company at the designated time and place. 

VAT Audit Procedures 

The FTA may conduct VAT audits in two main ways: 

1. Remote and Desk-Based Audits: Initially, the FTA may perform an audit remotely, reviewing system data and documentation. If the provided documentation is insufficient, the audit may then proceed to an onsite examination. 
2. Onsite Audits: Conducted at the business’s premises, onsite audits are necessary when further examination is required. 

Documents Requested by the FTA 

Businesses are generally given five working days to provide the following documents or information: 

• Transaction lists in the format prescribed by the FTA. 

• Various reconciliations to match returns with financials, such as revenue reconciliation and VAT ledgers reconciliation. 

• Audited or management financial statements. 

• Sample documents for each type of transaction, such as customs clearance documents for the export of goods. 

• Formats of documents like tax invoices and tax credit notes. 

• Stock movement and verification reports. 

• Any other documents deemed necessary by the tax auditor. 

Preparing for a VAT Audit 

To prepare effectively for a VAT audit, taxable persons should have the following documents readily available: 

• Tax invoices and documents related to goods and services provided. 

• Documents related to the export of goods, such as customs declarations and exit certificates. 

• Documents for the import of goods and services, including supplier invoices and customs documents. 

• Tax invoices received for goods and services for which VAT input is claimed. 

• Received tax credit notes and alternative documents. 

• A compiled transaction list of goods and services received and provided in the format suggested by the FTA. 

• Tax period-wise reconciliation of revenue and VAT ledgers. 

Additional Precautions 

To further prepare for a VAT audit, businesses should: 

• Regularly review and audit their accounting software, internal controls, and invoicing systems to ensure compliance with VAT guidelines and laws. 

• Thoroughly review VAT returns before submission. 

• Conduct regular reviews of VAT returns by external consultants if prepared in-house. 

• Stay updated on changes in tax laws and make necessary adjustments to their systems. 

Potential Outcomes of a VAT Audit 

A VAT audit can lead to various outcomes, including: 

• Assessments and penalties for non-compliance or underpaid taxes. 

• More thorough processes if additional issues are identified. 

However, businesses that prepare well and review their returns thoroughly can significantly enhance their ability to manage an audit effectively. 

Advantages of Preparing for a VAT Audit 

Effective preparation for a VAT audit offers several benefits: 

• Minimizing resources needed to gather necessary documents once the audit begins. 

• Quicker completion of the audit, avoiding deadline extensions and delays in VAT refunds. 

• Identifying, rectifying, and voluntarily disclosing any errors found during preliminary document reviews. 

• Potential reduction in penalties. 

Conclusion 

While a VAT audit may appear challenging, thorough preparation and a proactive approach can make the process more manageable and less stressful. By understanding the audit procedures, keeping essential documents ready, and staying compliant with VAT laws, businesses can navigate VAT audits with greater confidence and efficiency. 

Summary

A VAT audit in the UAE involves a thorough review by the Federal Tax Authority (FTA) to verify the accuracy of VAT declared, paid, and reclaimed by a business. The audit may be conducted remotely or onsite, depending on the adequacy of initial documentation. Effective preparation is crucial and includes organizing transaction lists, reconciliations, financial statements, and tax invoices. Businesses should regularly review their accounting systems and stay updated on tax law changes. Proper preparation can minimize resources needed during the audit, expedite the process, and reduce penalties. A proactive approach ensures compliance and smooth navigation through the audit. 

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.