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How to Initiate a Tax Audit process in UAE

The latest Ministerial Decision 74 of 2023 issued by MOF has laid down the fundamentals of Audit Procedure under Corporate Tax, UAE for the administration of tax audits ensuring compliance, fairness, and the proper functioning of taxation mechanisms. This article delves into the facets and intricacies of tax audit initiation, procedural considerations, and the outcome of these audits, shedding light on how regulatory authorities navigate the complexities of this process. The exploration unfolds within the framework of specific regulations, aimed at maintaining transparency, credibility, and legal soundness in the realm of corporate tax in UAE.

Initiating a Tax Audit under UAE Corporate Tax

Article 15 of the latest legislative development incepts tax audit process necessitates careful preliminary considerations by regulatory authorities. These considerations extend across various dimensions, each of paramount importance:

  • Ensuring Tax System Integrity: The tax audit, as a safeguard, works to maintain the credibility of the tax system. By meticulously examining tax-related matters, regulatory authorities ensure that the system remains robust and reliable.
  •  Adherence to Tax Laws: Regulatory authorities assess the adherence of entities and their affiliates to the laws governing taxation. This assessment ensures that entities operate within the ambit of established tax laws and regulations.
  •  Projected Tax Revenue: A projection of potential tax revenue forms a pivotal aspect of initiating a tax audit. By estimating the revenue that could be accrued as a result of the audit, authorities gauge the financial impact of their endeavours.
  •  Navigating Compliance Complexity: The compliance intricacies and administrative burdens encountered by both the entity under scrutiny and the regulatory authority itself are meticulously examined. This evaluation is pivotal for streamlining the audit process and ensuring fairness.

Read more: How to Register for Corporate tax in UAE?

Re-auditing Previously Audited Entities

In certain cases, the regulatory authority might find it necessary to revisit an entity that has previously undergone a tax audit. This revisit takes into account the outcomes of the prior audit and factors in any newly emerged information that could influence the regulatory standpoint. This approach ensures that the audit process remains dynamic and responsive to evolving circumstances.

Autonomous Nature of Regulatory Audit Decisions

It’s important to highlight that the authority to initiate a tax audit process is vested solely in the regulatory authority. The decisions made by the regulatory authority in this regard are not open to objections or disputes from any concerned entity. This autonomy emphasizes the authority’s role as the custodian of the tax audit process.

Communication of Tax Audit Intentions

Article 16 of the Ministerial Decision deals with the effective communication that is a cornerstone of any transparent and just process. When it comes to tax audits, the regulatory authority is mandated to communicate its intention to conduct an audit to the concerned entity. This communication is not only a formality but an essential step in ensuring the fairness and credibility of the audit process. The regulatory authority’s communication should be made with ample time before the scheduled audit, ensuring a minimum notice period of ten (10) business days. This notice serves not only as a heads-up but also outlines the potential consequences of obstructing the tax auditor during the audit process. This level of transparency is key to maintaining the integrity of the audit.

Tax Audit Procedures

Article 17 of the Ministerial Decision deals with the Tax audit procedures involving a comprehensive examination of various aspects related to the entity’s financial matters. Regulatory authorities are equipped with the authority to examine premises, review electronically stored data, and assess the accounting systems employed by the entity. This thorough assessment ensures that no stone is left unturned in the audit process.

Cooperation is essential during these procedures. The entity under audit is obligated to provide full cooperation, and the authority is even empowered to bring along authorized employees to facilitate the audit. Moreover, the authority can request specific information or documents from the entity if deemed necessary. This comprehensive approach ensures a thorough and transparent audit process.

Read more: How Will the UAE Corporate Tax Regime Apply to Partnerships?

Seizure and Retention of Documents

Article 18  of the Ministerial Decision deals with the powers of Tax auditors to seize and retain documents and assets if necessary for the audit process. However, this authority is exercised with precision and transparency. The process involves replicating documents, affixing markers to originals, seizing documents and assets, and recording pertinent information. Importantly, the regulatory authority is responsible for documenting the seized items and their conditions. This documentation is provided to relevant parties within a specified time frame. The authority’s role extends to the storage and potential disposition of seized assets, with safeguards in place to ensure fairness and transparency.

Outcome of the Tax Audit

Article 19  of the Ministerial Decision deals with the culmination of a tax audit process that brings about a critical juncture: the communication of audit results. The entity under audit receives formal notification of the audit’s outcome within ten (10) business days. This ensures that the entity is informed promptly about the findings, allowing for clarity and transparency in the process. Additionally, the entity holds the right to access documents, data, and information that led to the tax assessment. This right is exercised through an application submitted within twenty (20) business days of receiving the audit results. This provision empowers the entity with a deeper understanding of the assessment and maintains accountability within the regulatory process.

Tax audits occupy a central role in ensuring transparency, accountability, and fairness within a nation’s taxation system. Through careful initiation, meticulous procedures, and transparent communication, regulatory authorities navigate the complex landscape of taxation audits. Consultant our Tax Consultant UAE for expert guidance on navigating the UAE Corporate Tax regime.

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more