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Audit under Corporate Tax Law UAE, All You Need to Know

The audit procedure is an essential part of the corporate tax system in the United Arab Emirates since it verifies the integrity and correctness of data, assessment, and declaration that taxable organizations provide. It is a system intended to prevent tax fraud and evasion by maintaining an equitable and open tax administration. Organizations covered by the corporate tax framework in the United Arab Emirates need to understand the audit process, its significance, and how it will affect their compliance and financial obligations.

How To Comprehend the Audit Timeline/Schedule Under Corporate Tax, UAE?

The mandate to conduct audits on taxable organizations in the United Arab Emirates is vested in the Federal Tax Authority. The Federal Tax Authority is empowered to invoke audits for a maximum of five years after the relevant tax period ends or, if that happens later, from the day the tax declaration is submitted. This clause empowers the Federal Tax Authority to examine any tax period or declaration made during this period, regardless of whether a tax assessment has been issued. If there are any suspicions of tax evasion or fraud, the Federal Tax Authority can prolong the audit window by a further five years, which might result in a ten-year audit horizon. Except in situations where the FTA foresees possible information obstruction or concealment, in which case surprise audits may be carried out, taxable entities are entitled to a minimum notice of five working days before the scheduled audit date.

How To Prepare for The Audit Process under Corporate Tax?

Taxable entities ought to be prepared for Audit by considering the following: –

  • Keep thorough records and supporting documentation to validate all reported numbers.
  • abide by the relevant laws and regulations 
  • Gain a comprehensive understanding of the audit criteria and methods.
  • To provide further assistance and direction, qualified tax consultants should be Activated 

 

What Are the Locations to Conduct Audit Under Corporate Tax, UAE?

Audit procedures may be carried out at a number of locations, such as the headquarters of the Federal Tax Authority (FTA), the taxpayer’s place of business, or other sites where business is performed. Taking into account the complexity of the audit and the requirement for certain data and paperwork, the FTA chooses the best location for the audit. Taxpayers must provide all needed information, documentation, and data by the deadlines specified. They must provide the FTA with access to their employees, property, and assets in order to enable an exhaustive tax investigation. Taxpayers must cooperate in order to avoid legal repercussions and possible fines and penalties. 

What Is the Post Audit Procedure under Corporate Tax, UAE

After the audit is complete, the FTA sends a thorough report including all findings, recommendations, and observations. It also includes a breakdown of any tax liabilities found, including those that are overpaid, refundable, or outstanding. This report summarizes the audit’s conclusions and identifies any discrepancies, errors, or violations discovered in the taxpayer’s tax returns, calculations, or payments. The amount owed or refundable to the taxpayer is the tax liability, which is subsequently assessed or reassessed by the FTA. Following receipt of the audit report and tax assessment, taxpayers have 30 days to challenge the findings with a formal appeal.

What Are the Penalties for Violation During Audit or Regarding Audit Process?

Penalties for violating the corporation tax laws and regulations in the United Arab Emirates might vary depending on the type and seriousness of the offense. The following penalties may be imposed on violation:

  • Failure to register under the corporate tax framework or to notify the FTA of any changes to registration details is subject to a penalty of AED 10,000.
  • If the tax return is not filed or the tax is not remitted within the allotted time, there is a penalty of AED 20,000.
  • For every day that the payment is late, there is a penalty of 1% of the tax amount owed, up to a maximum of 300% of the unpaid tax.
  • If you underreport your tax liability because of an error in judgment or computation, you will be assessed a penalty equal to 50% of the difference between the tax that was reported and the tax that was computed.
  • If someone purposefully understates their tax liability through deception or concealment, they will be penalized 100% of the difference between the reported tax and the calculated tax.
  • If you hinder the audit process or fail to provide the required documentation to the FTA, you will be fined AED 50,000.

How can I get ready for a successful audit process?

  • Documentation is required: Reliability in record-keeping is essential to tax compliance. All financial transactions, tax declarations, tax payments, and correspondence with the Federal Tax Authority (FTA) must be fully documented, according to taxable companies. The company tax legislation recommends ten years of record keeping for a trustworthy audit procedure.
  • Bringing Accounting Procedures into Compliance with Tax Laws: – Businesses must make sure that their accounting practices comply with the corporation tax regulations of the United Arab Emirates. To maximize tax benefits and assure compliance, accounting procedures and significant spending categories should be reviewed regularly. Particular attention needs to be given to costs like interest and entertainment that are governed by tax laws.
  • Enhancing Organization and Financial Frameworks: – The finance and group structure of a firm can have a big impact on tax efficiency. To find any inefficiencies or restrictions on tax potential, entities should evaluate their current arrangements. The changes are required to comply with tax laws and regulations to limit the risks.
  • Free Zone Guidelines: – To take advantage of the zero-rate regime, entities operating within free zones are needed to adhere to certain requirements. To ascertain eligibility and balance the benefits against the regular corporation tax structure, a comprehensive examination of the free zone’s operational substance and footprint is necessary.
  • Tax Payments and Declarations: – It is imperative to ensure accuracy in tax declarations and prompt payment of taxes. Entities must scrutinize their tax filings to guarantee accuracy and compliance with the four-month filing deadline. Furthermore, for the fiscal year 2023, the deferred tax provision in financial statements needs to be taken into account.
  • Getting Ready for an FTA Audit: – As soon as you are informed that an FTA audit is about to occur, you must move quickly. Organization and preparation of the requested data is required, and a representative should be designated to oversee the audit process. This preparation shows that you are cooperative and ready for the FTA.
  • Reacting to the Results of the Audit: – It is essential to carefully review the audit report and assessments provided by the FTA. If an entity agrees with the results, it must pay any outstanding taxes right away. If there are disagreements, they should be resolved by submitting an objection within the allotted 30-day time, along with supporting documentation.

A proactive approach and preparation are mandatory for the UAE corporate tax audit process. By following the guidelines outlined in this guide, businesses can confidently navigate the audit process, ensuring compliance and maximizing tax outcomes. By adhering to these steps, entities can improve their readiness and minimize potential challenges during the audit. It’s recommended for businesses to seek professional advice to tailor their preparation to their specific circumstances and achieve the best possible outcome. The UAE corporate tax audit process plays a crucial role in the UAE corporate tax system, promoting fair and transparent tax administration while preventing tax evasion and fraud. Businesses subject to the UAE corporate tax system should understand the audit process, its significance, and its implications for their tax positions and obligations. Maximum outcome and optimization can be achieved by the business’s entities with effective preparation for the audit process.

Shayan Khan is an experienced Corporate Tax Consultant with over 4 years of expertise. He's skilled in negotiating and investigating taxes with government bodies like the Federal Tax Authority. Shayan excels in reviewing and drafting tax documents and offers strategic advice on complex tax matters. Clients trust his guidance in navigating tax procedures and minimizing liabilities. Read more