It has been more than three years now that since the VAT Law is decreed and implemented in UAE. The VAT system is well in place and all the participants are well entrenched in the system.
Prior to the implementation of the Law, the UAE government had carried out a number of sessions with the business community, industries, tax agents to help all participants in the VAT system are aware of the law, its implications, their respective roles, duties and
Post implementation of the law, the FTA has issued several Guides, Publications and Public Clarifications as a further help to the participants.
In the first year
❖ 296,000 – Businesses registered for VAT
❖ 650,000 – VAT returns submitted to Federal Tax Authority
❖ 453,500 – Phone calls and email enquiries addressed by the FTA In the second year
❖ The registrants reached to 312,000
❖ 454 VAT agents were registered to serve customers with technical supports
However, the experience has been that many entities are still not fully compliant with the law as they are either not fully aware of the law to the extent they should be aware or not aware of their tax obligations and consequences of non-compliance. Hence many entities are facing large value penalties for non-compliance.
As the next step for FTA is to ensure business are implementing the law and are correctly reporting their VAT obligations through a VAT Audit by FTA, it becomes all the more important for entities to understand the law and the VAT Audit.
What is a Tax Audit or VAT Audit?
An audit by FTA is a formal procedure of obtaining information from a tax registrant concerning the returns filed with the FTA where it has reasons to believe that the returns may not be accurate or have been incorrectly provided. It can be also be carried out randomly or by selection provided. It can be also be carried out randomly or by selection.
The audit can entail :
❖ Requesting for information and documents
❖ Verification of documents
❖ Reviewing tax positions of the registrant to ensure they are in alignment with the Tax Law and Clarifications issued by FTA
❖ Review of accounting records
❖ Requesting for reconciliations of various accounts in the ledgers with those reported in the returns.
The auditee is expected to provide the information within the requested time generally not more than 5 days.
Post VAT Audit
Post completion of audit, the FTA will submit a report of findings and if any errors are noted, then a formal demand for payment of tax with penalties imposed if any. The fines and penalties can be of significant amount.
VAT Compliance and mock audit
To avoid any fines or penalties, it is advisable to be a VAT compliant entity. Hence entities are advised
❖ Keep regular updates
❖ Seek clarifications
❖ Strength internal controls
❖ Conduct regular VAT training
Thereafter, the registrants should be ready to assess the VAT audit readiness in a phased manner. A mock audit carried out internally (by resources other than involved in VAT function if available) or by external consultants is advised.
A mock audit can cover following matters:
❖ Initial Compliance Review
❖ Revisit Tax Positions
❖ Return Review & Reconciliation with records
❖ Documentation Review & IT System – FAF Requirements
❖ Interviews & Audit Decisions
❖ VD / Reconsideration / Clarifications
For any queries or clarifications required on the above matters, kindly get in touch with us at firstname.lastname@example.org.
This summarized information is prepared for general guidance on matters of interest only. It does not constitute professional advice. You should not act upon the information contained in this publication without seeking professional advice. As such, it should not be used as a substitute for consultation with professional legal, tax or other advisers.