A checklist for FTA audits in the UAE helps businesses understand the whole tax audit process and ensure that it is fully compliant with the regulations. The federal tax authority (FTA) oversees tax activities, processes huge amounts of returns, and determines whether the obligations are being satisfied. Audits present challenges, involve complexity, and take more time, so preparing well in advance simplifies the audit, and a checklist supports the process.
An FTA audit or review will generally determine whether the business accurately reported its tax liabilities and whether it complied with registration for VAT. The FTA bases an audit on the invoices, documents, and returns or registrations filed. By introducing an audit program, the overall tax system is strengthened with every audit conducted, as it eliminates errors and mistakes in tax administration. By implementing an audit checklist, organizations within the UAE can maintain their focus to minimize errors and achieve compliance with little hassle.
Key Things to Know About the FTA Audit Process in the UAE
An FTA tax audit follows a set procedure in the UAE and allows the business to demonstrate its compliance with its tax obligations. Conducting the audit will involve examining the financial systems and the tax records to make sure both parts are accurate and meet the law. Some items to consider when mapping out the FTA audit process are:
- The audit may occur at the business premises or at the FTA offices.
- The authorities require companies to either physically present documents or provide them online.
- The FTA usually includes notice of the audit 5-7 days earlier to commence the audit.
- The review generally includes tax records and payment history to discover compliance.
- Audits will generally take place during regular business working hours as determined by the FTA.
- In exceptional circumstances, auditors, with the approval of the Director General, may continue outside of regular hours.
- Businesses will have to provide access to the management of the business and their appropriate staff and assistants to the auditor during the audit.
- At the end of the audit process, the FTA will provide a final report that lists any errors or non-compliance reported.
- Authorities can impose penalties for errors, and they may or may not conduct a re-audit.
Detailed FTA Audit Checklist in the UAE
In an FTA audit in the UAE, it is not just whether you have reported your tax liabilities correctly. In an audit, the FTA will check several more detailed things about compliance. To prepare for this, developing a list will help businesses organize their records and avoid errors in the audit.
Registration and Identification – FTA Audit Checklist in the UAE
- Check that your business activity codes are as accurate as possible and match your actual business activities.
- Make sure you use your tax registration number (TRN) correctly on all documents related to tax matters.
- If you are part of a group, ensure that group registration is accurate and current.
Taxable Supplies and Exemptions – FTA Audit Checklist in the UAE
- Correctly classify all supplies as standard-rated, zero-rated, or exempt.
- Confirm that all exemptions and zero-rated supplies claimed have proper eligible status.
- Correctly apply the reverse charge mechanism where required.
Input Tax and Credit – FTA Audit Checklist in the UAE
- Claims for input tax must only be for purchases eligible for input VAT.
- Ensure proper documentation to confirm the input tax applicable and any adjustments.
Fixed Assets and Capital Goods Scheme – FTA Audit Checklist in the UAE
- You must record all fixed assets appropriately. Confirm that the fixed assets would be eligible for VAT recovery.
- The capital goods scheme, where applicable, assists in reclaiming input VAT on qualifying capital goods.
E-Commerce – FTA Audit Checklist in the UAE
- Engagement in e-commerce may require VAT registration, depending on the revenue generated.
- Ensure you are correctly filing VAT returns and issuing authorized invoices.
- The distance selling thresholds, particularly for distance selling, imports, and exports, where applicable, can be of concern.
Record Keeping and Invoicing – FTA Audit Checklist in the UAE
- Keep accurate records of all financials, including invoices, sales records, purchase records, inventory, asset registries, and bank reconciliations.
- You must ensure all invoices meet FTA criteria for content and form.
Returns and Payments – FTA Audit Checklist in the UAE
- Submit VAT returns accurately and on time.
- Pay tax liabilities on time to avoid penalties and interest.
Industry Specific Compliance – FTA Audit Checklist in the UAE
- If your sector has specific tax issues, ensure you have covered the VAT rules relevant to your industry.
- Make sure you are aware of the latest VAT decisions.
Documents Required During an FTA Audit
Before the audit starts, the FTA obtains an “audit file” from the business. The audit file should be in FAF format at the invoice level and allow the FTA to check that the company is following VAT laws correctly.
Company Details
- Business name
- Tax Registration Number (TRN)
- Name and Number of tax agencies
- Name and approval number of tax agents
Customer/Supplier Information
- Location of customers and suppliers (UAE or outside)
- Tax registration number (if available)
- Tax codes
Transaction Information
- Invoice numbers and dates
- Value of each transaction
- VAT clearly stated
Key Mistakes Businesses Make During FTA Audits
Simply understanding some common mistakes made when having FTA audits is helpful for businesses to demonstrate compliance and avoid penalties. Most mistakes occur as a result of careless mistakes, poor record-keeping or generally because a business has not kept track of what are the VAT rules. Understanding your business areas will help you reduce errors.
Some of the most common FTA audit mistakes include, but are not limited to:
- Misclassification of products or services.
- Claiming input tax on non-eligible purchases, billing, or errors in filing documents.
- Incomplete records.
- Mistakes include incorrect depreciations, claiming VAT back on non-qualifying assets, or failing to follow the capital goods scheme rules.
- Failing to register for VAT on time, incorrectly applying the distance sales threshold, and not confirming compliance with imported and exported goods.
The size of the penalty depends on the kind of mistake and how serious it is. The FTA has the final say in deciding the penalty based on each business’s situation.
Benefits of Al Riyady’s Support in Preparing for Your FTA Audit
An FTA audit checklist is a good way to prepare for an audit of your business and ensure compliance with the UAE’s tax regulations. At Al Riyady, we help companies to prepare for tax audits. Our team will review your financial records to determine compliance with VAT requirements and help you avoid penalties.
Closure
The FTA audit checklist in the UAE helps companies stay ready and compliant with tax regulations. Keeping records accurate, submitting returns in time, and knowing VAT requirements will also minimize mistakes and prevent fines. With Al Riyady’s professional help, you can easily navigate audits, freeing up your energy to focus on growing your business.
