Understanding FTA audits is main to accurate filings and avoiding penalties. As Gulf tax frameworks mature, UAE businesses face heightened scrutiny from the Federal Tax Authority (FTA) on VAT, corporate tax. This guide covers compliance practices, red flags, and preparation steps.

• Audit Triggers and Selection Criteria

Audits are risk-driven, using data analytics and cross-verification to detect financial irregularities.

FTA initiates audits for:

• Unexplained discrepancies between corporate tax returns and VAT filings, or sharp profit fluctuations without justification;
• Consistent loss reporting vs. sector peers;
• Large/unusual VAT refund claims;
• Frequent voluntary disclosures/amendments;
• High related-party transactions without transfer pricing documentation;
• Delayed filings/payments;
• Mismatches between reported revenue and financial statements;
• Links to investigated entities; and
• Whistleblower reports.

• Legal and Procedural Framework

FTA Audit Powers and Procedures

Under Federal Decree-Law No. 28 of 2022, FTA verifies tax compliance via audits at headquarters, premises, or record/inventory sites. FTA can examine/seize accounting books, invoices, documents. Audits: on-site or remote.

• Notice and Access Process:
  • Standard notice: 10 business days pre-audit;
  • Routine on-site: ≥5 business days’ notice;
  • No-notice: Up to 72 hours with Director-General consent for evasion suspicions.

For no-notice audits, FTA may close premises if access denied/evidence at risk; residential entry needs Public Prosecution approval.

• Taxpayer Rights:
  • Representation by tax agent/legal counsel during audit;
  • Presence/representation at field visits;
  • Copies of reviewed documents;
  • Clarification/additional evidence for discrepancies.

• Time Limits for Tax Assessments

FTA has 5 years from tax period end to issue/amend assessments. Extends to 9 years for disputes/ongoing audits; +1 year post-voluntary disclosure. VAT real estate records retained up to 15 years.

• Documents and Record-Keeping

UAE Requirements

Under Article 56 of Corporate Tax Law, taxable/exempt persons must maintain:

• Accounting records/financial statements;
• Sales/purchase/income/expenditure records per tax period;
• Asset registers (acquisition/disposal details);
• Loan/liability records;
• Shareholder/equity records;
• Tax returns/supporting schedules/reconciliations;
• Bank statements/contracts; and
• Transfer pricing docs (master/local files).

Retain 7 years for corporate tax; 5 years under general procedures. Extensions for audits/disclosures. Records in English/Arabic, digital/physical, accessible on FTA request.

• UAE Audit Types

FTA uses desk, field, hybrid reviews based on risk.

• Desk audits: Remote via digital platforms; request statements/invoices/reconciliations for minor issues/isolated transactions. Respond via EmaraTax/email.
• Field audits: On-site; examine systems/contracts/data, interview staff. For high-risk/repeated breaches/inconsistencies. Notice: 5-10 business days.
• Hybrid audits: Desk + targeted field; initial electronic review, then on-site for material risks.

• UAE Penalties

Outcomes include fines for delays/record violations.

• VAT Penalties:
• 2% immediate on unpaid tax for missed deadlines;
• +4% after 7 days (total 6%);
• +1% daily after 30 days, capped at 300%

Corporate Tax Penalties:

• AED 500 (US$136.1)/month late filing (year 1), AED 1,000 (US$272.2)/month thereafter;
• 14% annual interest on unpaid (monthly calc.);
• AED 10,000 (US$2,722.9) first-time record failure; AED 20,000 (US$5,445.8) if repeated in 2 years.

Administrative: AED 20,000 late VAT registration; AED 1,000/delayed VAT return. 5% discount for settling ≤15 days. Installments for large penalties over 12/24 months at 1% annual interest.

• UAE Appeal Process

Multi-stage resolution:

• Tax assessment review: Request reassessment ≤40 business days post-notice; correct factual discrepancies.
• Reconsideration: File with evidence ≤40 business days if unsatisfied.
• Tax Dispute Resolution Committee (TDRC): Escalate unresolved ≤20 business days; pay tax/penalties first, Arabic docs. (Dubai TDRC: Dubai entities; Abu Dhabi: Abu Dhabi/foreign; Sharjah: Sharjah/northern emirates.)
• Judicial appeal: Either party to courts ≤40 business days post-TDRC; for complex/high-value cases.

• Preparing for Audits

Internal Health Checks

Conduct mock audits to fix reporting weaknesses. Reconcile ledgers with returns; resolve discrepancies pre-notice.

• Document Organization

Follow “Completeness, Defensibility, Consistency”:

• Completeness: All corporate tax/VAT docs available;
• Defensibility: Records substantiate positions/decisions;
• Consistency: Figures align across statements, filings, schedules.

Designate audit liaison for clear FTA communication to avoid delays.