UAE FTA VAT Audits — What Can You Expect?

In accordance with Cabinet Decision No. (36) of 2017 and the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures, as well as Federal Decree Law No. 18 of 2022 (Amended Decree Law) which amended Federal Decree Law No. 8 of 2017, effective from January 1st, 2023, VAT returns serve as legally binding statements of tax liabilities, constituting a self-declared assessment.

Responsibility for the preparation and accuracy of VAT returns lies with the taxable person, mandating compliance with prevailing legislation and ensuring the correctness of tax liabilities. The UAE Federal Tax Authority (FTA) conducts VAT audits to verify compliance and accuracy, underscoring the significance of meticulous record-keeping and adherence to regulations.

Since the introduction of VAT in 2018, a 5-year statute of limitation governs the period during which VAT declarations remain subject to FTA audits. As such, 2023 marks the final year within which the FTA may initiate audits or invoke provisions under the Amended Decree Law. Nevertheless, Article 79 of the Amended Decree Law grants the FTA an additional four years to conduct audits if it has issued a notice for audit or assessment prior to the expiration of the general statute of limitations.

Understanding the intricacies of VAT return compliance and audit procedures is essential for businesses operating in the UAE. By adhering to regulations, maintaining accurate records, and proactively addressing any discrepancies, businesses can mitigate risks associated with FTA audits and ensure ongoing compliance with VAT legislation.

Key considerations for VAT return compliance and audit readiness include:

• Accurate Record-Keeping: Maintaining meticulous records of all transactions, including sales, purchases, expenses, and VAT payments, is paramount. Accurate documentation facilitates the preparation of VAT returns and provides a reliable basis for audit defense.

• Timely Submission: VAT returns must be submitted within the prescribed deadlines to avoid penalties and demonstrate compliance with regulatory requirements. Procrastination or delays in filing may attract fines and scrutiny during FTA audits.

• Compliance with Legislation: Staying abreast of amendments to VAT legislation and regulatory guidelines is imperative. Adherence to prevailing laws ensures that VAT returns are prepared in accordance with statutory requirements, minimizing the risk of non-compliance.

• Internal Controls: Implementing robust internal controls and procedures helps prevent errors, inaccuracies, and potential instances of tax evasion. Clear segregation of duties, regular reconciliations, and internal audits bolster the integrity of financial data and support compliance efforts.

• Engagement with Tax Advisors: Seeking guidance from qualified tax advisors or consultants can provide invaluable insights into complex VAT regulations and compliance obligations. Experienced professionals can offer strategic advice, identify potential risks, and assist in optimizing tax planning strategies.

• Documentation Retention: Retaining supporting documentation, such as invoices, receipts, contracts, and correspondence, is essential for substantiating VAT claims and responding to FTA audit inquiries. Organized record-keeping facilitates the resolution of discrepancies and fosters transparency in tax reporting.

• Response to FTA Inquiries: Promptly addressing FTA inquiries and requests for information demonstrates cooperation and commitment to compliance. Clear and concise communication with FTA auditors, backed by accurate documentation, can expedite the audit process and mitigate potential penalties.

• Continuous Monitoring and Review: Regular review of VAT compliance procedures and periodic internal audits enable businesses to identify and rectify errors or discrepancies proactively. Ongoing monitoring fosters a culture of compliance and enhances preparedness for FTA audits.

In conclusion, VAT return compliance and audit readiness are critical aspects of business operations in the UAE. By prioritizing accuracy, adherence to regulations, and proactive engagement with tax authorities, businesses can mitigate risks, safeguard against penalties, and foster long-term compliance with VAT legislation. Strategic planning, robust internal controls, and collaboration with tax advisors are essential elements of an effective VAT compliance framework, ensuring business resilience and regulatory adherence in a dynamic tax environment