In the United Arab Emirates, corporate tax audit is a legal procedure that confirms an organization’s adherence to tax regulations. To ensure that taxable income is reported, tax forms are filed, corporate income taxes are paid on schedule and audits are carried out.
Under UAE Corporate Tax Law, Federal Decree-Law No. 47 of 2022, the FTA is empowered to conduct corporate tax audits. Businesses are required to maintain documentation and records of the financial data required to be submitted for auditing.
Why are Corporate Tax Audits Important?
A corporate tax audit is essential and encompasses the following list:
| Statutory compliance | Ensure companies ensure compliance with the provisions of the corporate tax law |
| Transparency | Ensure that stakeholders rely on published statements. |
| Detection of tax evasion/fraud | Detects mismatch, fraud, and/or understatement. |
The FTA carries out different types of corporate tax audits on the basis of selected forms of enterprises in the UAE under the eligible specified conditions, which are as follows:
- Free Zone Entities with Income Over Thresholds: Those with income over AED 30 million will qualify for automatic audit under the required conditions.
- Entities with Free Zone Status: Those persons eligible for tax relief under the qualifying free zone entities shall lose status only where they fail the monitoring conditions.
- Random Selection for Audits: Some businesses can be randomly selected for audit without qualifying under the conditions above to form part of FTA’s random selection procedure for equity.
Step-by-Step UAE Corporate Tax Audit Process and Procedure
Corporate tax audit procedures in the UAE are as follows:
1. Selection for Audit
The FTA selects which companies to be audited based on the criteria which are as follows;
- Audit consideration from risk-high industries
- Annual Turnover that is above the statutory threshold
- Huge income and expenditure variances
- Random selection to ensure fair distribution in systems.
2. Notice of Audit
The formal notice of audit is received by the company after being selected. The following is part of the formal notice:
- Audit scope
- Procedural time frames and submission date
- All the necessary documents
3. Pre-Audit Preparation
The pre-audit stage involves the following;
- Collect all the financial documents in the form of tax returns, which were submitted and audited financial statements.
- Access Electronic Copies with Ease
- Organize files by every calendar year and department.
- Appoint employees conversant with the activities of the organization to assist in the auditing.
4. Auditing Procedure
Under this procedure, FTA examines:
- Tax regulations covering the firm
- Federal Decree-law no.47 of 2022
Others whom FTA examines include: –
- Submission and payment for the income, cost, and other deductions
- All tax obligations were submitted in compliance with the filing deadline.
- Further verifications of any replies provided in the process
5. Reporting of the Auditors
Once all the auditing procedure is done the FTA raises an audit report with the particulars that involve:
- Statement proving company compliant or non-compliant to tax law in the United Arab Emirates.
- All violations, or breaches which have been created.
- Recommendations or sanctions.
How to Overcome the Audit Triggers
These include:
- Faulty Reporting: False information regarding income, claims, and tax pay.
- Faulty Document Maintenance: Inadequate invoices and other receipts and even bank documents.
- Faulty Business Expense Categorization: Misinformation expenses of the company.
- Faulty Filing: Failure to file returns or pay taxes within the set time frame.
- Failure to meet the set conditions of the tax-free zones.
How to Prepare for Corporate Tax Audit within UAE
Businesses are advised to do the following:
- Keep All Your Financial Records Up to Date
You should ensure that all your financial statements, receipts, and invoices have been filed and arranged and kept up to date.
- Ensure compliance with UAE Tax Laws and Provisions
Ensure compliance with provisions of Federal Decree-Law No. 47 of 2022, and more other guidelines.
- Regular Internal Audits
Regular checking for spotting anomalies in accounts for corrections.
- Technology
Preparation of records on accountancy software and bookkeeping, which can be mechanized, as well as observation of transactions for lesser errors.
- Experts
Engage the expert services of reputable auditors or tax consultants.
Penalties include:
- AED 20,000
- AED 500 for every error or mistake until corrected
- AED 10,000 to 20,000
- AED 500 first year uncollected and AED 1,000 second year.
Conclusion:
Businesses are advised to seek the expert services of premier Tax Consultants and Audit Firms in UAE to seamlessly ensure compliance with corporate tax audits in UAE. Contact us today and we shall be glad to assist you.
FAQs; -UAE Corporate Tax Auditing
Which documents are helpful for an audit of taxes?
- Pre-audit statements of finances
- Pay stubs, invoices, and contracts as proof
- Tax documents for the period under audit
How long does a corporate tax audit take?
The length of time is determined by the audit’s scope and the company’s level of readiness. Most audits take a few weeks.
Do companies have the right to contest an audit’s conclusions?
In reality, they can but are required first to appeal before FTA, without which no reason is sought, and it’s best to be advised by a tax advisor for the same purpose.
Does corporate tax audit extend to small-scale businesses?
Small-scale businesses have relatively low chances of being audited. However, this cannot be entirely ruled out in light of any risk associated with the industry, or due to some fluctuation in income levels.
Is there any benefit of hiring a tax consultancy service?
Tax consultants make compliance easier and identify probable risks that can lead to the initiation of audits, hence decreasing the chance of penalties associated with it.
