Insights

As we know that the UAE VAT compliance is based on the self-assessment and the responsibility with regards to interpretation and application of tax regulation correctly in order to comply with their respective tax obligations is apparently positioned on taxpayers. The Federal Tax Authority accepts the returns filled by the taxpayers and all the amounts reported by the Taxable Person and assume their legitimacy, unless those amounts may later be amended as a result of an assessment or audit by the Authority.

What Is VAT Audit?

A tax audit is essentially a government’s assessment of a company about their responsibility as a taxable entity to ensure that the tax liability is paid and every 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.

Reason for VAT Audit?

VAT Regulation does not provide any specific reason based on which FTA can initiate Audit on Tax Payer, however there are some indicators (as mentioned below) which may leads to the VAT Audit.

• High Value Business or Targeted Industries
• Repetitive Voluntary Disclosures
• VAT Refund position for a large amount
• Irregular VAT Return Filling (Late Return/Late Pavements)
• Unusual Decrease in Tax liabilities/Increase in Input Tax.
• Mismatching between FTA & Custom records (Import Records)
• Mismatching in Reverse Charge liability and Input claimed

The Federal Tax Authority (FTA) will issue notice to the company, at least five days before the scheduled audit date. Notice will mention the details, such as the audit schedule, place of audit, involved parties, reason and other details as may deemed fit by the FTA.

Records to be asked and verified during VAT Audit?

Federal Tax Authority (FTA) may ask for the records as mentioned in Article (78) of Federal Decree-Law. These records are supposed to be maintained by the registrant all the time and to be made available to the FTA when asked. The list given blow is not exhaustive but the FTA may demand any further document.

Important to note that the FTA will allows only 5 days to provide all the required information in the prescribed format.

• Premises, Assets those are available at the Premises & Accounting Systems used by the Person can be verified
• Tax invoices and documents related to receiving goods & services
• All tax invoices and documents issued & All tax credit notes and documents received
• Records of all supplies (Including out of Scope supply) & Imports (Goods & Services)
• Records of goods and services that were disposed of for matters unrelated to business and records showing tax paid to the same
• Records of Goods and Services purchased and for which the Input Tax was not deducted
• Records of Exported Goods and Services along with official & commercial evidence of Export of Goods
• Details of Goods imported along with Customs declarations and Supplier Invoices

Why VAT Audit Review by third party is desirable now?

Firstly, A VAT Audit-Review by tax professionals can help you to ensure that you are on the right side of the UAE VAT Law and 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.

Secondly, As you may rightly aware about the substantial reduction in tax administrative penalties through the new Cabinet Decision no 49 of 2021 by the UAE Federal Government, it is high time to correct your previous mistakes and file Voluntary Disclosure before starting of FTA Audit.

How KSG Can Help?

• Assessment through a comprehensive VAT Health Check to examine key areas of tax compliance and the controls thereon and highlight the areas where more attention is required.
• Review of existing documentation and reports and provide necessary guidance to change it as in accordance with the FTA requirements
• Review of legal contracts and agreements to check the tax implication relating to those contracts
• Mitigating risk of getting penalty with timely corrections & resolving tax non compliances with a planned approach
• Help to file Voluntary Disclosures (If Required)
• Provide Detailed Training to the In-house Staff for VAT Audit Readiness
• Provide Health Check Report which would be a guiding document for the company for future tax compliances

KISHLAY KUMAR

Designation: Director/Partner

About Author:

Chartered Accountant, Dip. in International Taxation(ICAI)

Having over 12 years of experience in advising clients on Direct & Indirect tax and regulatory issues across India, UAE, KSA & Bahrain.

Areas of Specialization:

• Value Added Tax (VAT)
• Excise Tax
• Custom
• Transfer Pricing
• Project Management
• Process Improvement
• Risk Management