The Essential Things to Know About Tax Audits in Dubai

Approved auditors in Dubai are in high demand after the new Value Added Tax (VAT) law was established in the United Arab Emirates (UAE) in 2018. Two years later, the rules and regulations for companies across the UAE are clear and in place, meaning there is no justification for not abiding by them.

As a way of ensuring that businesses across the country are paying the required taxes, the government has implemented a system of tax audits that assesses whether a company has satisfied its obligations. If you run a business, then you must understand what these tax audits are and how they work. To assist you, read on for the essential things you need to know about tax audits in Dubai.

1. Tax audits in Dubai started in 2019.

On January 1, 2018, the Federal Tax Authority (FTA) implemented VAT on taxable goods and services. This marked the first time that the UAE's products and services were subjected to VAT. Consequently, tax audits also became a reality for the country, as they are necessary for the FTA to review a company's tax compliance.

During a tax audit, the FTA will assess and analyse whether or not a company has fulfilled its responsibilities related to paying taxes. Additionally, it will also examine if the business is required to pay other fees (such as Excise Tax) per the UAE's rules and regulations. In other words, these tax audits are meant to assist the government in identifying firms that are committing tax fraud.

2. There are two ways that tax audits are performed in the UAE.

In the UAE, tax audits are performed in two ways: either by “on-site auditing” or “auditing from the office.” In the first case, the auditor will conduct the inspection on the premises of the business in question. Generally, this means that the necessary information and data can be gathered quickly, and the whole process can be sorted out in a short amount of time.

On the other hand, the FTA may direct the company to submit the appropriate documents. In most cases, this takes much longer to complete than if it were to be conducted on-site. This is due to the communication that must transpire between the FTA and the business (as well as within the company) to get the required information.

If your company is going to be audited, the FTA will notify you five days before initiating it. It will also tell you the expected timetable and venue for the audit, as well as the reason for conducting it. That being said, in particular cases, the FTA reserves the right not to provide any notification to the business, and no reason needs to be given by the FTA for conducting an audit.

Regardless of how the audit is performed, once it is completed, the FTA will generate a report that will then be presented to the company. Within the report will be the audit results and whether or not the firm is liable for any penalty under law.

3. You always want to have your documents organized.

As you can imagine, five days isn't a lot of time to get your documents wholly organized, which is why it is highly recommended that you always have your books and records at the ready. By doing this, you can be assured that you won't be a hindrance if you should get audited. Bear in mind that if a company that is being reviewed is unable to produce all the necessary documents, there are significant penalties.

An auditor will require a record of all the present inventory of the company and the related receipts and tax invoices. They will also want to see a history of the goods and services that were disposed of, exported, or utilized in the business. Furthermore, you may need to present records of the products that were imported as well as the firm's overall accounting recors.

By staying on top of your documents and having them prepared at all times, you will be in a much better position should you have to go through an auditing process. If you are found to have not maintained your accounting  records, there will be a penalty of AED 10,000. Furthermore, tax violations can also lead to the closure of your business entirely, which is why you want to make sure you are prepared.

4. Expert advice is invaluable.

It is expected that over time, most firms that are registered for VAT will be subject to an audit. Therefore, the best way to save your business from having hefty VAT fines and penalties is to outsource your tax procedures to approved tax agents and professionals in Dubai. 

For example, you can have value added tax consultants in Dubai conduct a preliminary internal tax review to ensure that your firm is adhering to the applicable tax laws and adopting the appropriate processes. Additionally, the consultants will review your record keeping and retention of documents. It is highly suggested that you have such a review at least once every financial year to guarantee that your company is compliant with evolving tax laws.

When looking for a tax team to outsource to, you want to ensure you are finding one that includes expert VAT consultants in Dubai who possess notable tax experience. Moreover, they must provide a hands-on approach so that you receive the best service. This approach allows the team to identify critical areas where your business may be vulnerable.

Working with a team like this will not only ensure that your documents are in order, but it will also help your business to grow, as they will work with you to decrease risks and enhance operations. What’s more, it will keep you calm and enable you to focus on other more pressing parts of running the business.

Do you have any additional questions about the tax auditing process in Dubai? What are you doing to ensure you are organized if it should happen in the future? Let us know your thoughts and any other related experiences in the comments below!