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Tax Auditing in UAE- How Important is It?

A magnifying glass with a focus on the word audit written in golden letters and other accounting words over black background.
A tax is a contribution to the state's revenue levied by the government on employees' earnings and corporate profits, transactions and services. Taxation is a procedure for governments to reclaim the money by levying a particular fee on individuals. The primary goal of taxation is to raise revenue for the operation of the government machinery. The Tax Law went into force in the UAE on January 1, 2018. All businesses in Dubai and the UAE should guarantee that every department is prepared to embrace the new change. One of the primary issues under consideration is updating the company's accounting software. The same should follow the legislation governing VAT accounting. Accounting procedures should be audited to ensure no discrepancies between the recorded transactions. Read on to know more about tax audits' significance and impact on businesses. In this article, let's take a closer look at tax audits and how tax advisory services do it.

An Overview of Tax Audit

VAT returns are used to send tax amounts that may be collectable based on the supplies made to the FTA. VAT is a self-assessment tax, which implies that the payer is accountable for calculating the tax owed. The FTA employs the tax audit technique to determine whether or not the self-assessed statement is correct. In the event of differences resulting in unpaid VAT or overclaiming VAT deductions, the FTA will issue an assessment requiring individuals to pay the VAT and penalties.

The FTA can undertake a tax audit at any moment and for any reason. The FTA will review the tax returns as well as additional documents and data that belong to the tax returns during a tax audit. The FTA is not required to have a specific justification for auditing a registered organization. Nonetheless, Article 17, per the Tax Law, requires the FTA to notify the corporation at least five days before the audit date.

All taxable enterprises are not required to have an audit. There is no established plan for the frequency of audits. It is the FTA's responsibility to choose enterprises for auditing on a regular basis. The FTA has the ability to audit the enterprises entirely or not. The following factors should be considered when selecting a firm for a tax audit.

  • Business scale and complexity
  • Compliance history
  • Increase in late return presentations
  • Filing errors

Procedures Followed by Tax Advisory Services for Performing a Tax Audit

A taxable individual is usually notified five business days before a tax audit. If alerting would jeopardize the FTA's capacity to undertake the assessment, it may be appropriate to withhold notice. Tax evasion is also included in this category. The FTA performs tax audits at taxable persons' enterprises or, in some situations, at their offices. FTA audits are often conducted at taxable people's places of business during regular business hours.

For the audit to go well, company owners (including agents) must support and provide the auditor with the required help. When a person receives the notification of a tax audit, the following steps should be done:

  • Offer access to the premises
  • Prepare the account books, tax bills, and other documents for inspection.
  • Present the employees who file tax returns
  • Produce the invoice or original document

If the person fails to furnish the relevant records or refuses to cooperate with the tax audit, they may be liable for any applicable fines. The FTA will notify the liable person of the outcomes of the audit once it is completed. The tax evaluation will be provided as soon as the audit concludes and whether any of the findings stated below are discovered:

  • Failure to file within the term specified by the VAT Law.
  • Failure to produce a tax return by the deadline specified in the VAT statute.
  • Failure to pay the tax as seen on the VAT return before the time limit.
  • Submitting your VAT return incorrectly.
  • VAT shortfall as a result of tax evasion

Furthermore, if there is proof that the results could result in any situations listed in the statute, the taxpayers will be subject to administrative fines.

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Role of Tax Audits Performed by Tax Advisory Services in an Organization

A tax audit will offer the following advantages to an organization:

  • A Tax Audit will make sure that the accounts books and every other record pertaining to revenue are maintained properly, avoiding the eleventh-hour panic.
  • It reduces the risk of fraudulent practices.
  • Tax auditing helps in the precise reporting of accounts to tax officials. It determines flaws in the bookkeeping system and allows for suggestions for improvements.
  • An audit enables the advice provision that can result in financial benefits for a firm.
  • An audit provides published information with more credibility to employees, suppliers, investors and customers.
  • It will make sure that the businessman enters the overall deduction claims accurately.
  • An audit assures shareholders that the information in the accounts reflect a genuine and fair picture.
  • An audit increases the company's reputation.

Based on their observations in the record, managers can provide concrete recommendations for business improvement.

Also Read : A Comprehensive Guide on Sin Tax

Impact of a Tax Audit on Business

Because a Tax Audit is the government's re-evaluation of a company's position as a taxable body, its impact on an organization is considerable.
A businessperson's hand is shown in close-up as they calculate an invoice at their workplace.

  • A Tax Audit safeguards the taxpayer's rights. The taxpayer now has the ability to check the professional identity cards of tax auditors. He is welcome to attend auditing proceedings and acquire photocopies of any original article or digital records. He has the option of obtaining a duplicate of the tax audit notice.
  • It protects professional secrecy. Employees of the FTA are not permitted to share any information obtained unless requested by judicial authorities.
  • A tax audit boosts a company's credibility and safeguards its reputation. Moreover the true value of the firm is revealed.
  • It provides taxpayers with guidance. Its goal is to resolve any tax-related concerns and difficulties as comprehensively as possible via open communication between the taxpayer and the recipient.

Final Words

UAE companies must reduce the risk of FTA fines and penalties. They help in the identification of all errors and faults in VAT returns. As an approved tax agency by the FTA of the UAE, Fortius Consulting Services and being one of the best business consulting and CFO services, it can assist your company with an audit review. In addition, the assessment will guarantee that your clients do not have any VAT concerns that could jeopardize commercial connections.

Fortius Consulting Services is a trusted name for business consulting and CFO services in the UAE, Singapore and India. Through our expert consulting and advisory services,we assist organisations across the UAE & Asia to boost their profitability, improve operational effectiveness, increase management capability, institutionalise strategies, and upgrade their internal structures.


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