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FTA VAT Audit

Ensuring Compliance & Avoiding Penalties

Introduction

FTA VAT audit refers to an audit conducted by the Federal Tax Authority in UAE on businesses’ financial records to ensure that the transactions are accurately reported in their VAT returns. The objective is to verify if the business has complied with the provisions of UAE VAT law, and ensure proper VAT calculations, timely submission of returns and maintenance of VAT-related documentation.

We help in assisting with the FTA audit to get ready for a VAT audit. We will review the transactions from the point of view of VAT laws and guide you in rectifying any non-compliance-related issues.

The FTA will decide on the process and timeline to complete the audit. The penalty will be decided by the FTA if any non-compliances are identified during the VAT Audit

What Triggers an FTA VAT Audit?

  • FTA may select businesses for a VAT audit based on several factors, including:
  • 1. Late VAT registration and deregistration
Businesses in the UAE have to comply with the VAT provisions with respect to VAT registration and deregistration requirements. If any business fails to comply with these requirements, FTA will impose penalties and if required, may initiate a VAT audit to ensure that the Entity applied for registration or deregistration within the timeframe mentioned in the law and based on proper grounds.
  • 2. Improper VAT returns
FTA may initiate an audit if they find that the VAT returns submitted were incorrect, filing returns late or incorrect treatment of applicable rates etc.
  • 3. Incorrect claim of VAT refund
If FTA identifies any incorrect claim of VAT input while submitting VAT returns or applying for a refund, they may ask for clarification, or initiate an audit. mentioned in the law and based on proper grounds.
  • 4. Tax Evasion

If the taxable person does not disclose his income or intentionally tries to reduce tax
liability, may lead to a VAT audit if FTA finds so.

  • 5. Incorrect issuance of tax invoices and credit notes and non-maintenance of proper supporting documents
If the taxable person fails to issue proper tax invoices to their customers as per the provisions of VAT law and does not maintain proper supporting documents, the FTA may conduct an audit to penalize for the non-compliance.

Will the FTA Notify Before Conducting a VAT Audit?

Yes, FTA provides prior notice.
  • The FTA usually gives a minimum of 5 working days’ notice before conducting an audit.
  • Businesses are required to prepare and submit relevant documents within the given timeframe.
  • However, in some cases, government authorities may conduct surprise inspections to check tax compliance.

What are all the documents to be kept ready for VAT Audit?

A VAT Health Check covers the entire VAT process, tailored to the agreed scope. Key areas include:
  • Tax invoices issued to customers
  • Tax invoices received from suppliers for goods and services
  • Supporting documents related to Exports and Imports
  • Tax credit notes issued to customers
  • The compiled transaction data format file provided by the FTA
  • Reconciliation of revenue and expenses with VAT ledger
  • General ledgers and Trial balances for the period pertaining to the audit
  • Signed audited financial statements
  • Legal documents of the Entity
  • Bank statements covering the audit period

How to be ready for the VAT audit?
(VAT Health check)

Installation of proper accounting system
The taxable person should maintain a proper accounting system which should generate tax-related transactions at any point in time. The authority will review the accounting system. Use of proper accounting software will enable you to produce proper tax invoices, credit notes, VAT returns and other types of reports.
Under UAE VAT law, all taxable persons are required to maintain financial and accounting records for the period of the last five years after the end of the tax period to which they relate.
Timely filing of VAT returns and payment of due tax
Businesses must ensure that VAT returns are filed before the due date of each period and paid the due tax on time.
A taxable person should implement a proper internal control system to ensure that the provision of VAT regulations is complied. An efficient internal control system helps in the timely submission of VAT returns, reviews and reconciles the records regularly, ensures compliance and avoid penalties.

Connect with us

Facing an FTA VAT audit? Spectrum offers expert support to help your business navigate the audit process, ensuring full compliance and accuracy. Whether you need assistance with a specific audit or ongoing support, we’re here to guide you every step of the way.

Call us today for a free consultation

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