Corporate Tax Audit UAE

Corporate Tax Audits UAE is a mandatory process to check if companies comply with tax regulations and report their tax liabilities correctly. An auditor reviews a company's financial statements, tax returns, and supporting documents in a mandatory audit. Its purpose is the identification of differences, errors, or omissions in the company’s financial records and tax filings. In this article, we take an in-depth look at Corporate Tax Audits in the UAE and what is required for the same.

Corporate Tax Audit Requirements UAE 

As per UAE regulations, Corporate Tax Audits are mandatory for Applicable Taxable Persons who satisfy certain criteria which are:

• Persons with income exceeding thirty million UAE dirhams (AED) in the relevant tax period. 
• Qualifying Free Zone Persons.

UAE Corporate Tax Audit Process Step-by-step 

The UAE Corporate tax audit process is a structural method comprising different phases. Here's an Audit checklist for UAE companies:

• Selection for Audit: Companies are selected for audit by the Federal Tax Authority depending on whether turnover thresholds have been exceeded, industry focus, large fluctuations in income, or random selection.
• Notification and Initial Meeting: When selected, the company is formally notified by the FTA of the scope and time frame of the audit. The audit process is discussed in detail and documents that are required are clarified, as well as the communication channel is set at an initial meeting.
• Preparing for the Audit: A smooth UAE corporate tax audit is the pre-audit phase. Companies need to submit audited financials, tax returns, and supporting documents and group them in year and category. Essential documents should be available in electronic copies and someone should be designated in the company who is aware and can answer the questions of the auditor.
• Conducting the Audit: The auditor checks on the Corporate Tax Law and the FTA standards in the course of its audit. The audit of the company verifies its fulfillment of all its tax liabilities’ settlements, proper collection of taxes, and the payment of the collected taxes to the authorities from within the provided deadlines.
• Issuance of Audit Report: After the audit, the auditor generates an audit report on whether the financial statements are accurate and confidential. This report adds to transparency and accountability for investors and other stakeholders.

With knowledge of the UAE corporate tax audit process companies can better plan for audit and ensure tax compliance.

Tax Compliance Audit Checklist UAE 

To prepare for a corporate tax audit companies should gather all relevant documents and organize in a well and updated form. Below is a short list of all documents needed for a UAE Federal Tax Authority Audit:

Table 1: Corporate Tax Audit Document Checklist

Corporate tax discrepancies UAE audits: Common mistakes leading to corporate tax audits in UAE 

Audits are made to locate any disparities or mistakes you create in your company’s tax filings. Some common mistakes which are responsible for corporate tax audits in UAE include:

• Inaccurate reporting of income or expenses 
• Failure to keep proper records
• Transactions are misclassified.
• Violation of Tax Laws and Regulations
• Failure to file your returns on time.

To avoid these mistakes, companies should:

• Record income and expenses correctly and promptly.
• Keep proper records of invoices, receipts, and bank statements.
• Transactions should be properly classified under relevant tax laws and regulations.
• Review and update regularly their tax compliance processes.
• File your tax returns on time, and make sure they are done right.

Tax Audit Penalties in the UAE

Non-compliance with corporate tax audit requirements can result in various penalties, including:

1. Late filing penalties: AED 500 for the first 12 months, and then AED 1000. 
2. Inaccurate or incomplete tax returns: AED 500 unless corrected before the deadline.
3. Failure to maintain proper records: AED 10,000 to AED 20,000.
4. Failure to facilitate tax auditor during a tax audit: AED 20,000.

FAQs

1. How to prepare for a corporate tax audit in the UAE?
   

   For businesses preparing for corporate tax audits in the UAE, these tips may be helpful:

   • Keep good financial records.
   • Follow UAE tax laws and regulations.
   • Review submitted tax returns to ensure accuracy.
   • Establish strong internal controls to prevent errors and fraud.
   • Prepare to respond to inquiries of the Federal Tax Authority (FTA) on financial statements and tax filings.
     

2. What triggers a corporate tax audit in the UAE?
   

   A: Corporate tax audits in the UAE can be triggered by:

   • The annual turnover threshold set by the FTA exceeded for a tax year.
   • In industries with a higher risk of non-compliance.
   • Significant income fluctuations in comparison to industry averages.
   • Random selection to maintain the fairness and balance of application of tax rules.

    

3. How are tax audits conducted for businesses in the UAE?
   

   A: Tax audits in the UAE take place step-by-step, which includes:

   • Selection for audit based on various selection criteria.
   • Formal notification from the FTA on the scope and timeframe.
   • Arranges the initial meeting with the company to discuss the audit process, the required documents and channels of communication.
   • The auditor glances through the company’s financial statements, tax returns and supporting documents.
   • Publication of the audit report evaluating the reliability and confidentiality of financial statements.

    

Conclusion

In conclusion, to navigate corporate tax audits in UAE confidently, it is very important to know the requirements, tax audit checklist, tax audit penalties, and audit process. Seeking services of expert corporate tax consultants in the UAE will help companies keep proper financial records, knowing tax laws and regulations, and maintain strong internal controls which ultimately allows a company to have a much smoother, and more efficient audit experience in the UAE.