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VAT Tax Audit in UAE- Risks & Consequences

October 22, 2019

It’s time to ready for Federal Tax Authority Tax Audit 2019

Businesses in UAE must prepare themselves for official and mandatory audits in 2019 as it has been one & half year since the VAT has been implemented in UAE. All the laws and regulations for all kinds of businesses are clear and properly in place. The provisions of the federal law on taxation have mandated the Federal Tax Authority (FTA) with the legal right to perform a tax audit on any person to determine their compliance with the provisions of the relevant laws.

There is a misconception that filing of VAT return is the last step of compliance in a tax period although it is the first step towards VAT audit. Businesses should review their already filed VAT returns and make sure that all tax positions opted by the company are correct, supporting documents are available with them, the system is capturing all the required data fields into system and company is preparing the reconciliation statements between VAT returns & accounting data for the upcoming VAT audit.

It is advisable for all the business entities in UAE to prepare themselves for TAX Audit in a timely manner as FTA allows only 5 days responding to their queries. The list below shows the kinds of review that can be done in order to prepare you for an upcoming tax audit:

  • Whether all taxable supplies at standard-rated is charged at respective tax rate.
  • To ensure that only eligible zero-rated supplies are charged as zero-rated and proper supporting documents are maintained.
  • To check whether the services if any imported from outside the UAE are recorded under Reverse Charge Mechanism.
  • To check whether only the eligible input credit is taken against such import of materials or goods under the reverse charge mechanism.
  • To ensure that out of scope supplies if any are accounted properly.
  • To check whether the goods imported into the UAE through UAE customs are recorded under Reverse Charge Mechanism
  • To reconcile the amount shown in FTA records as the value of goods imported and the output liability on such imports with the records shown under the books of accounts.
  • To check whether exempted supplies if any are recorded and reported properly.
  • Whether only eligible input credits on purchases and expenses are claimed.
  • In the case of mixed supplies (exempted and zero-rated/standard rated) whether the input credit is calculated as per the formula provided under the law.)
  • Whether input credit on the import of goods and services are calculated and claimed properly.
  • Whether proper records i.e. proper tax invoice, tax credit notes, Custom Bill of entries, Custom Bill of Exits are maintained

How MB Group Can Help:

A VAT Audit-Review by a Registered Tax Agency (Approved from Federal Tax Authority of UAE) can help you to find all the errors/mistakes/omissions in your VAT returns in order to minimize the risk of fines and penalties in case of Tax –Assessment by FTA. It will also ensure that you do not create VAT issues for your customers which can adversely affect your commercial relationship.

MB Group’s tax professionals are experienced in providing tax health checks that bring together our knowledge and experience in taxation and related internal controls. These health checks will be targeted towards enabling clients to undertake any necessary corrective action before an audit takes place & avoid the penalties.

Last Updated: 10th October 2019This article is contributed by: Vipin Ahuja Associate Director


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