Under the Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures and Federal Decree Law No. 18 of 2022 (Amended Decree Law) amending Federal Decree Law No. 8 of 2017 (Decree Law) effective from January 1^st, 2023, VAT returns form a legally binding statement of your tax liabilities as a self-declared assessment.

This means the preparation and accuracy is the responsibility of the taxable person and is subject to UAE FTA VAT audits to verify the accuracy of tax liabilities and compliance to the prevailing legislation.

Following the introduction of VAT in 2018, the 5-year statute of limitation results in any VAT declarations being no longer subject to any FTA VAT audits. Therefore 2023 represents the final year the FTA can trigger audits or invoke provisions under the Amended Decree Law. However, under Article 79 of the Amended Decree Law for Statute of Limitations, grants the FTA an additional four years to undertake an audit providing that it has issued a notice for audit or assessment before the expiration of the general statute of limitations of five years.

As a result, the FTA is likely to increase its focus on audits. In our series of articles, we discuss the key questions surrounding an FTA VAT audits.

What Is An Tax Audit?

Under the Organisation for Economic Co-operation and Development (OECD) guidelines, an audit is defined as:

“Examination of whether the taxpayer has correctly assessed and reported their tax liability and fulfilled other obligations.”

The UAE VAT system operates under a self-assessment basis and therefore audits are considered essential to promote voluntary compliance. They seek to:

•        Identify non-compliance to the Legislation

•        Gather intelligence on the state of the tax system.

•        Gather supply chain information (an audit on any business could trigger an audit on another business)

•        Educate businesses and assist on implementation of the law and identify areas that require may require clarification

Your business may have filed VAT returns and in some cases received refunds without any audit procedure.

This does not necessarily mean the FTA has accepted any non-audited business as compliant. They reserve the right to audit any business for up to 5 years, hence it should be your responsibility to remain compliant and proactive to any changes to the Legislation.

Conducting audits are a time-consuming procedure and the approach is designed to maximise the accurate provision of information to allow the FTA to perform audits at scale. The tax authority will require access to accounting records, documentation and personnel to conduct their audit.

When & What triggers An FTA VAT Audits?

An audit can be triggered by a variety of factors and may not be solely determined by the size of the business. The timing for any audit cannot be predicted, nevertheless, several criteria most likely lead to an audit:

 What are the Legislative Powers?

The Legislation grants the FTA wide-ranging powers to ensure compliance is met. These powers (set out across six documents issued under the VAT Legislation) grant the FTA powers to compel businesses to full disclosure and also subject penalties for non-compliance. In terms of the specific audit procedures, the law grants:

 What Are The Audit Procedures?

It is likely the FTA will conduct audits in the following manner to enable scale and efficiency. At each stage the penalty assessments increase for any disclosures affecting underpaid taxes or noncompliance.

Initially, the emphasis may be on remote, desk-based audits where system data and documentation provide is the primary assessment model.

If this is considered unsatisfactory, an onsite audit may occur which will require further preparation. In summarising the procedural aspects, the below table provides further clarity:

Sufficient depth in documentation, completeness of transactional data, clarity and responsiveness will be essential to satisfy audit procedures. Therefore, preparation in providing a complete and timely response is essential.

What Could Result From An FTA VAT Audits?

An audit could lead to several outcomes subject to the satisfaction of the FTA on the completeness and accuracy of the audit response. This can range from:

–        Assessment and penalties for non-compliance and underpaid taxes

–        Further procedures and penalties if additional issues are identified

How We Can Help?

If your business is subject to an FTA VAT audits, as a FTA Tax Agency operating to ISO 9001 & 27001 standards, we have experience and understanding with a structured approach to assess, prepare and support you through the audit procedures. Our experienced team can quickly identify risks and seek to determine the optimal approach to satisfy FTA procedures.

While this article provides high-level guidance, it is not a substitute for tax or legal advice, and we encourage you to seek advice regarding the specific matters that concern you. If you wish to speak to us, you may contact us for a no obligation consultation.

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