How to Prepare for VAT Audit in UAE?
VAT Audit in UAE starts in 2019. VAT Audit in UAE is the review performed by the Federal Tax Authority (FTA) in order to verify that whether the business is following all the VAT laws and implementing VAT as per the regulation of FTA.
The FTA will ask the businesses to submit the information which will be verified with the VAT returns submitted. Also, the authority might check the sales and purchase invoices and review the books of accounts along with the VAT returns submitted to FTA. & the relevant supporting documents like tax invoices, credit notes, export documents, contracts etc. to ensure the compliance with the UAE VAT Law.
The FTA may choose any business or taxable person for VAT Audit in UAE based on various factors observed through the procedures like a review of VAT returns submitted, Vat refund application processes, Voluntary disclosures submitted, clarifications provided etc. or even when the authority receives or identifies sufficient reason to believe that a Tax Audit is required on a taxable person.
Auditors in Dubai may decide to conduct it in the premises of the company or the FTA may contact the company to bring certain documents for the purpose of the audit. Either way, a company that is requested to be prepared for a tax audit should be prepared indeed to avoid any problems.
Hence, the FTA may start the VAT Audit in UAE when it has reason to believe that a taxable person needs to be audited. FTA will notify the business at least 5 days in advance. FTA will conduct tax audit in official working hours.
Top tips to prepare for a VAT Audit in UAE :-
- Review of Accounting system & VAT Returns
One of the key factors in the audit will be updation of accounting software. A review of the systems will ensure that there is no inconsistency with the recorded transactions, Also need to ensure that the documents can be maintained at least for 5years/15years.
VAT Returns must be file Timely on or before 28th following the tax period. Also, ensure no errors are made while submitting the returns.
Perform a reconciliation between accounts and VAT return frequently
- Pre-audit check
Do a pre-audit check to give yourself time to correct any errors prior to the official audit by the FTA
- Proper reporting of Output tax & claiming of input tax
Ensure the correct amount of tax due should be paid within the due date or even before it. Make sure that the export of goods is supported with proper supporting documents. Ensure that input is properly claimed, and the tax invoices received are in compliance with the provisions of the law. Special care must be taken on the compliance of the provisions related to the recovery of input on entertainment-related expenses or personal expenses.
Factors That Can Trigger FTA’s VAT Audit in UAE
Generally, FTA’s VAT Audit in UAE is not initiated against all the business unless there is some reason to begin a tax audit, a number of the explanation for the authority to do therefore is any of those listed below.
- Late VAT Registration
If you fail to apply for VAT registration within the timeframe specified by the VAT Law, then it could be the reason for VAT audit notice by department.
2. Incorrect Tax Returns
If any wrong amount of tax was charged or tax is incorrectly charged, then it can lead to errors in the tax returns.
3. Failure to issue Proper Tax Invoices and other supporting documents
If the taxable person fails to issue tax invoices as per the provisions of the Law and fails to provide any such relevant information ask by the authority.
4. Several deductions
If you take several deductions, claim losses for multiple years in a row, these are all risk factors for an FTA audit. If you’re chosen for an FTA audit, you’ll be notified in writing.
5. Tax Evasion
The shortfall in VAT payable as a result of a tax evasion.
As discussed above it will be important for a taxable person or businesses to be prepared for Vat Audit in UAE and to ensure VAT compliance. For this purpose it is always recommended to get audited with help of a tax agent like us to avoid any kind of error or non compliance.
At RVG, We are happy to support and guide your company for any of the above-mentioned requirements. Our Tax Professionals are highly qualified and experienced. We can help you in proper implementation of VAT law and can provide you VAT consultancy services related to any matter of UAE VAT.