Is Your Business Ready for Tax Audit?

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.

Let’s look at what comes under a tax audit. Under the Self-Assessment System of Vat returns filing, the onus is clearly placed on taxpayers and businesses 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

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 every tax due is collected and given to the government within the timeframe given. The government also assesses a company whether they are following certain responsibilities that apply to their business as per the tax laws

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 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 are taken against such import of materials or goods under 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 MBG Can Help:

With this in mind, it is an opportune time for taxpayers to prepare themselves for the eventual audit. One of the best ways to prepare for this is to undertake a tax health check to examine key areas of tax compliance and the controls thereon. A high-level health check may highlight key taxes or compliance areas where more attention is required.

MBG’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.

With the health checks, clients will also be better prepared to handle a tax audit as they would have collected the necessary documentation that was put together during the health check and can continue to ensure such documentation is readily available.

Last Updated: 8th January 2019 This article is contributed by: CA Vipin  Kumar Ahuja Senior Manager, Taxation