Tax Services in the United Arab Emirates

What Is a Tax Audit?

A tax audit is a process through which the Federal Tax Authority reviews accounting records, supporting documents, financial information, and tax filings to verify the accuracy of tax obligations and compliance with UAE tax laws and regulations.

A tax audit may relate to Value Added Tax, Corporate Tax, or other tax obligations depending on the nature of the business and its tax position.

Why Is a Business Selected for a Tax Audit?

A business may be selected for a tax audit for different reasons, and selection does not necessarily mean that a violation has occurred.

• Routine reviews by the Federal Tax Authority.
• Differences or risk indicators in tax returns.
• Verification of records and supporting documents.
• Repeated errors or amendments in tax filings.
• Review of specific transactions or tax periods.
• Review of refund claims or credit balances.

What Does the Tax Auditor Usually Request?

Requested documents may differ depending on the type of audit and the nature of the business, but the Authority may request records and documents supporting taxable transactions.

• Tax invoices.
• Tax credit notes and debit notes.
• Sales and purchase records.
• Bank statements.
• Financial statements and trial balance.
• Contracts and agreements.
• Import and export documents.
• Inventory and fixed asset records.
• Previous tax returns.
• Previous correspondence with the Federal Tax Authority.

How to Prepare for a Tax Audit

Preparing for a tax audit starts with reviewing records and documents before submission and ensuring that accounting records are consistent with tax returns already filed.

• Review previous tax returns.
• Reconcile sales and purchases with accounting records.
• Review bank statements.
• Prepare invoices and supporting documents.
• Identify potential differences or errors.
• Prepare clear responses to FTA enquiries.

Common Issues Identified During Tax Audits

• Differences between tax returns and accounting records.
• Missing invoices or supporting documents.
• Input tax or output tax errors.
• Incorrect tax treatment of certain transactions.
• Failure to maintain records for the required period.
• Errors in Free Zone, import, or export transactions.
• Failure to disclose related party transactions where required.

VAT Audit Support

During a VAT audit, the Authority may focus on periodic VAT returns, tax invoices, input tax, output tax, import and export transactions, exempt and zero-rated supplies, and outside-scope transactions.

Corporate Tax Audit Support

During a Corporate Tax audit, the review may focus on financial statements, taxable income, deductible and non-deductible expenses, related party transactions, transfer pricing, and Free Zone companies.

Responding to Federal Tax Authority Enquiries

The Federal Tax Authority may request explanations or additional documents during a tax audit, and such requests should be handled carefully and within the prescribed deadlines.

Unclear responses or incomplete documents may lead to further enquiries, tax risks, or potential penalties.

Documents Required During a Tax Audit

It is important to prepare an organized file containing the required documents and responses relating to each tax period or transaction under review.

• Tax returns.
• Accounting records.
• Invoices and supporting documents.
• Contracts and agreements.
• Bank statements.
• Customs declarations and shipping documents.
• Related party and transfer pricing files where required.

After the Tax Audit

After a tax audit, the Authority may issue an audit result, request further clarification, or issue tax decisions or penalties depending on the case.

If penalties or tax decisions are issued, the decision, reasons, and supporting documents should be reviewed to determine the appropriate next step, whether payment, correction, or submitting a reconsideration request where there is a proper basis.

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