As per Art. 17(1) of the Tax Procedure Law, The Tax Authority has the right to perform a tax audit on any taxable person to ascertain the extent of that person’s compliance with the Tax Laws. Tax Audit refers to an independent examination of books of accounts and various tax records of a tax registrant to ensure proper compliance of tax laws and curb the unlawful tax practices in the economy.
A tax audit can be prompted if authority has serious grounds to believe that the person subject to the tax audit is participating or involved in tax evasion or non-compliance.
Tax audits are also conducted at regular intervals to assess a taxable entity is complying with the tax laws and requirements pursuant to the VAT Laws and Excise Tax Laws. Tax Audit is conducted to examine whether the taxable persons have paid every liability, and all the tax due is collected and given to the government within the stipulated timeframe. As per Article (17) of the Tax Procedures Law, the tax audit can be completed either at the office of the authority or at the place of business of the taxable person or any place where the person carries on his business and keeps records or store goods.
The authority if decides to initiate a Tax Audit, must inform the taxable person at least five business days prior to the tax audit. In addition, the tax auditor, as appointed by the authority, shall send a notification of tax assessment containing the information about the audit.
Article 17(1) of the Tax procedure law grants The Tax Auditor, the right of entry to the business premises of the taxable person or other place where place where the taxable person stores goods or keep records and can temporarily close the business in order to perform the VAT or Tax Audit for a period not exceeding 72 hours without prior notice of.
The authority has serious grounds to believe that the Person subject to the Tax Audit is participating or involved in Tax Evasion. The authority has serious grounds to believe that not temporarily closing the place where the Tax Audit is conducted will hinder the conduct of the Tax Audit.
In accordance with Art.78 of the VAT Decree Law No. 8 of 2018, the taxable person shall keep the following records and make available to the auditor, during the course of tax audit:
• 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.
• Details of Goods imported to the state along with Customs declarations and Supplier Invoices.
The objective of tax audit is to ensure there is tax compliance by the registrants as well as safe-guard revenue streams for the Federal Government. The registrant is subject to penalties in the law and/or prison sentences and other monetary penalties if a registrant is found guilty of non-compliance.
• The failure of a person conducting business to keep the required records - penalty of AED 10,000 for the first time and AED 50,000 in case of repetition.
• Submission of Incorrect Tax return by the Registrant - AED 3,000 for the first time and then AED 5,000 in case of repetition.
• The Failure of the person conducting business to facilitate the work of the Tax Auditor - AED 20,000.
• The Failure of the taxable person to submit a registration application within the time frame specified in the tax law - AED 20,000.
• The Failure of the registrant to submit a deregistration application within the time frame specified in the Tax law – AED 10,000
• The violation of tax laws can lead to imprisonment of the authorized signatory and can be considered a criminal offence.
The role of a Tax consultants is to assist the business getting organized when they are intimated for the tax audit from the authority. A proper VAT Health Check will boost the confidence of the businesses to face the UAE tax audit. Given below are some of the top tips to prepare the businesses for tax audits in the UAE.
Review of the System: During the Tax Audit, the auditors will examine all the tax-related transactions, the businesses need to ensure that there is no inconsistency in any records. We can review their systems to ensure that the transactions are being recorded properly. The businesses need to also ensure that their accounting software comply with the VAT accounting requirements.
Review of Calculations of Tax: We conduct a proper review to ensure that all the transactions subject to VAT has been accounted and recorded properly both for output tax and input tax and they are complying with the UAE VAT laws. The standard tax rate of tax in the UAE is 5% and many goods or services that are subject to zero or exempted VAT rates should be treated as such with sufficient document support.
Review of VAT Returns: The VAT-registered businesses are required to submit the periodic VAT return on FTA portal. The VAT 201 return involves uploading the data of Standard Rated Supplies, Supplies subject to reverse charge provisions, zero rated supplies, Exempt Supplies, Goods imported into UAE, Standard Rated Expenses etc. These data are required to be segregated in appropriate boxes of VAT return form in the FTA portal. With our expertise, we assist the businesses to ensure that the returns are filed in the proper manner. We ensure to record the values in the right boxes and the required information is filed in the timeframe specified by the FTA.