Proactive, Not Reactive – Be Ready for FTA Tax Audit
In today’s highly competitive market where businesses are fighting for their market share, Boards are showing less tolerance in accepting risks, which may result in losing revenue or increasing cost. VAT money collected from the customers belong to the government, so any errors made due to an inaccurate implementation of VAT will leave the businesses vulnerable, losing a portion of their profit or paying hefty penalties for non-compliance of Tax Laws (listed below).
Under the Self-Assessment System of Vat returns filing, the onus is clearly placed on taxpayers and businesses has to interpret and apply the tax legislation correctly in order to comply with their respective tax obligations. Essentially, the only way Federal Tax A can verify that these obligations have been complied with is by conducting a tax audit.
Let’s look at what comes under a tax audit. A tax audit is basically a government’s assessment of a company about their responsibility as a taxable entity. This kind of audit is conducted by the FTA to ensure that every liability is paid and tax due is collected and given to the government within the timeframe given. The FTA authorities will check the returns and other details/documents like sales invoices, purchase invoices, Custom & VAT documents related to import/export of goods/services. There need not be a specific reason for the FTA to conduct an audit of a company. They can conduct it for any reason or whenever they want. A notice will be issued to the company, at least five days before the scheduled audit date. It will contain details, such as the audit schedule, place, involved parties, reason (if anything particular), etc.
It is advisable to all the business entities in UAE to prepare themselves for TAX Audit in timely manners as FTA allows only 5 days responding for their queries. The following tables list the administrative penalties for violations related to tax procedures & VAT laws.
| Description of Violation | Administrative Penalty (AED) |
| The failure of the person conducting Business to keep the required records and other information specified in Tax Procedures Law and the Tax Law | (10,000) for the first time. (50,000) in case of repetition. |
| The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Tax Assessment he was notified of, within the timeframe specified in the Tax Law. | The Taxable Person shall be obligated to pay a late payment penalty consisting of: – (2%) of the unpaid tax is due immediately once the payment of Payable Tax is late; – (4%) is due on the seventh day following the deadline for payment, on the amount of tax which is still unpaid. -(1%) daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment with upper ceiling of (300%) |
| The submission of an incorrect Tax Return by the Registrant. | 2 fixed penalties will be applicable; 1. Fixed penalty of: · (3,000) for the first time and (5,000) in case of repetition 2. Percentage based penalty shall be applied on the amount unpaid to the Authority due to the error and resulting in a tax benefit as follows: – (50%) if the Registrant does not make a voluntary disclosure or he made the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first. – (30%) if the Registrant makes the voluntary disclosure after being notified of the tax audit and before the Authority starts the tax audit. – (5%) if the Registrant makes a voluntary disclosure before being notified of the tax audit by the Authority. |
| A Person not accounting for any tax that may be due on import of goods as required under the Tax Law. | (50%) of unpaid or undeclared tax. |
| Failure to comply with conditions and procedures related to keeping the Goods in a Designated Zone or moving them to another Designated Zone. | The penalty shall be the higher of AED (50,000) or -(50%) of the tax, if any, chargeable in respect of the goods as the result of the violation |
| Failure by the Taxable Person to issue the Tax invoice or an alternative document when making any supply. | (5,000) for each tax invoice or alternative document. |
| Failure by the Taxable Person to issue a Tax Credit Note or an alternative document | (5,000) for each tax credit note or alternative document. |