Tax Audit Notifications and Limitations Under UAE Law

Federal Decree-Law No 47/2022 UAE Corporate Tax laws were announced to be effective from 01 June 2023 at @9 percent of all income earned in excess of AED 375,000 for any given fiscal year and @ 0% (zero percent) for any income below this level. The elements of UAE corporate tax Audit Law i.e. tax audit notification periods, scope of tax audit UAE, voluntary disclosures ,limitations of tax Audit UAE, and dispute resolution are discussed hereunder.

Auditing Under The UAE Corporate Tax

The audit is mandatory for corporate transparency to the public and for the Law of Corporate Tax. Corporate Tax Consultant UAE can help businesses to deal with the challenges of corporate tax audit, risk identification, and management thereof. Therefore, it is possible to improve aspects of corporate governance aiming at registration concerns and annual tax returns free from penalties on officially set inline directives by the Federal Tax Authority (FTA).

Auditing under UAE Corporate Tax

Provisions of Notifications and Limitations in UAE Corporate Tax Law

Provision	Description
Tax Audit Notification	Article 16(2) of the amendment also increased the time limitation for tax audit notification up to ten business days which means the taxable persons get more time to prepare the documentation.
Tax Assessment Notification:	Tax Assessment Notification should be provided to the taxable entities concerning tax assessment within ten business days (previously five business days).
Penalties for Non-Cooperation:	Section 24 states that the tax agents/representatives who are not assisting the tax auditors may suffer penalties.
Revised Penalty Limits:	Article 24 lowers the administrative penalties on tax assessments, and removes the minimum AED 500 penalty.

Tax Audit Criteria UAE

The term “audit” by the Federal Tax Authority UAE is technical and refers to a broad assessment with two main types of tax audit approaches.

Desk Audits	Desk audits are conducted at the FTA offices. A desk audit can also be interpreted as the search for discrepancies in the view of such submitted documents as tax papers and tax returns.
Field Audits:	Field audits are conducted within the business premises whereby significant information including financial documents, and other business activities are studied intensively.

Audit Triggers and Notification Process

Tax inspection notice specifies the reason for audit selection made by the Federal Tax Authority(FTA). Several factors can trigger a tax audit notification:

Discrepancies in Tax Returns	Discrepancies in tax returns between income & expenses
Non-compliance	Failure to follow the rules/ procedure, for instance, the return was not filed on time or certain taxes were not paid.
Random Audit Selection	Random selection can also be made for tax laws compliance related matters.

Pre-Audit Preparation

Maintaining Accurate Financial Records

Adequate preparations in terms of documentation is mandatory by ensuring the following:

Updating accounts in line with the corporate taxation laws for the necessary realization of the ultimate goal of the UAE corporate tax audit process.
A record of each transaction made should be correct and up to date.
Legal evidence such as invoices and agreements
Working capital management is the frequency of account reconciliations.

Assuring Adherence to the UAE Laws of Taxation

For UAE tax audit law compliance, a frequent basis review is mandatory to reduce chances of non-compliance:

Monitor legislation changes.
Ensure that you file all your complete tax returns on time.

Identifying Potential Audit Risks

Conducting self-evaluations to identify weaknesses by following:

Reporting inconsistently.
Shown as non accessible and they may not be accessible in part or in full.
Specific source: Errors in financial entry classification.

Appointing a Tax Audit Coordinator

Appointing a coordinator for better compliance and to take tax auditing process advantages in the UAE:
Gathering all communications with FTA in one point of contact.
To provide and/or provide access to all the related records.

A Checklist for Corporate Tax Audit Preparation: Do Not Wait Until an Audit Inquiry Is Issued Before Responding

Accurate Financial Statements	statement of financial position and statement of cash flows, as well as documentation of recorded transactions (where applicable).
Tax Returns with Payment Receipts	Maintain tax payments records of tax Try to settle any outstanding dues.
Accounting Policies and Internal Controls	Record the accounting policies that exist/ Apply the accounting policies in force. Confirm that the principles, which regulate expenses and revenues, are applied
Payroll and Employment Records	Keep payroll documentation, including tax withholdings. Manage tax & wage files as per legal standards.
VAT and Excise Tax Records	Maintain the records of VAT returns and excise tax. Allow auditable proofs for VAT corresponding and authentic invoices.
Transfer Pricing Documentation	All records relating to transfer pricing should conform to the laws of the United Arab Emirates.

How to Respond to Notifications

Standard Time & contact person	Respond to tax audit notices within Gulf Standard Time (GST). Identify a contact person responsible for dealing with auditors’ questions.
Relations with Auditors	Promptly provide documents requested by auditors. Lead staff during interviews and discussions if needed.
Working to Deadlines	Observe audit deadlines and respond on time. Maintain close communication with auditors throughout the process.

Post Audit Procedures

Review of Reports:- Examine auditor reports to identify activities or factors requiring corrective measures.Consult stakeholders on recommendations and implement necessary changes.

Adjustment and Fines

Take appropriate measures to resolve audit-related issues.
Make timely payments of fines to avoid aggravating the situation.

Record Its Supporting Evidence: Safely keep all evidence related to any audit for future reference.

Practices Which Enhance the Chances of Being Ready for the Audit

Conduct internal audit reviews periodically.
Establish frameworks to manage the limits of UAE tax audit periods.
Educate employees on relevant tax regulations.
Use technology or professional tax advisors for effective audit preparation.

Conclusion

Successful tax audits in the UAE are made possible through advanced preparation. Businesses that maintain appropriate records, recognize their weaknesses, and observe best practices can effectively manage risks and comply with the UAE corporate tax audit guidelines.

shayan khan

Shayan Khan is an experienced Corporate Tax Consultant with over 4 years of expertise. He’s skilled in negotiating and investigating taxes with government bodies like the Federal Tax Authority. Shayan is really good at reviewing and drafting tax papers and offers strategic advice on complex tax matters. Clients trust his guidance in navigating tax procedures and minimizing liabilities.