VAT audit is the process through which the Federal Tax Authority of the UAE checks the business's record, returns, and documents thoroughly to assess that the business has been complying with all the tax regulations. The declaration provided by this business - regarding the supplies done, taxes paid, and the VAT refund claimed - is checked by the Federal Tax Authority. It helps in establishing whether the declared supplies, taxes paid, and VAT refunds are accurate. Thus, all tax liability is recovered within the stipulated time. Throughout the audit, the FTA could request specific business information to be verified against the VAT returns and other declarations made.
When Will the FTA Conduct a VAT Audit?
Previously, within five years from the close of the relevant tax period, the FTA was legally allowed to audit the VAT. However, with effect from 1 January 2023, Article 79bis of the UAE VAT Decree-Law provides that the FTA, if it is so minded and informs the business before the end of the initial period of five years, may extend that further period of five years by as many as four years. The FTA can conduct an audit without giving any prior intimation and shall communicate notice at least five days before the date of the audit, mentioning the schedule and location with the parties concerned and the reasons for the audit.
Audit Procedures
The FTA can conduct VAT audits in two primary ways as mentioned below:
- Remote & Desk-based Audits: These are limited to only scanning system data and documentation without physical visit.
- Onsite Audits: This is given only if the preliminary study raises some flag points for which detailed preparation is needed for auditing.
Required Documents
The FTA generally requests some specific documents within five working days, which are on the list of transactions in the prescribed format by the FTA. In addition, various types of reconciliation, which include revenue and VAT ledgers, audited or management financial statements, sample documents for each type of transaction, tax invoices credit notes and stock movement reports.
Preparing for an Audit
When preparing for a VAT audit, a person should have all these documents in the right place:
- Tax invoices and other supporting documents for the sales of goods and services
- Shipping documents for exports, such as customs forms
- Importation documents like supplier invoices and customs documents
- Period lists of transactions in the prescribed format
- Reconciliations between periodic revenues and VAT accounts.
In addition, businesses should review their accounting practices periodically to conform to VAT laws keep correct records, and be informed of any new tax legislation.
Audit Outcomes
The outcome of a VAT audit may encompass some or all of the following and can further explore other issues:
- An audit including penalties for tax default or tax underpayment
- Further audit where other difficulties might emerge
Proper planning through return checking before an audit simplifies audits.
Advantages of being prepared for a VAT audit
Several reasons are being prepared for a VAT audit to be favorable:
- Fewer resources will be required for data collection once the audit is started
- The audit will be easier to complete, and few VAT refund delays
- Preaudit detection and correction of errors are possible
- Potentially lower penalties
BMS Auditing can help
At BMS Auditing, we assist business organizations in preparing for a VAT audit through our wholesome services. Our planned VAT health check is designed to scrutinize all service lines about tax audits so our customers are ready and comply. Here's what we offer:
- Get guidance on keeping records in the prescribed format of the FTA
- Get updates about the changes in FTA requirements
- Preparation and verification of required reconciliations
- Reconciliation of all transactions to ensure everything is in line with UAE VAT law
- Checking of records for different supplies
- Stock movement and validation checking on the inventory
- Suggestions on the document formats that require immediate changes toward return VAT
Our report concludes with every detail, every suggestion, and every change requirement, tailored according to the needs of every business.
Ready to Ensure Your VAT Compliance?
Contact BMS Auditing today to find out how we may assist you in guiding your way through the VAT audit process while meeting all regulatory compliance requirements.
