Understanding Tax Audit Periods Under UAE Law

In the UAE, businesses face strict tax compliance regulations, and missing key deadlines can lead to costly penalties. A delay in submitting your tax return can result in fines of AED 500 per month for the first year, escalating to AED 1,000 per month thereafter. Additionally, failing to maintain proper records can incur penalties as high as AED 20,000. These fines highlight the importance of understanding the tax audit period and the critical timelines for VAT and corporate tax audits.

Being aware of the tax audit period is essential for avoiding penalties, staying prepared for audits, and ensuring accurate financial reporting. With the UAE's tax laws continuously evolving, businesses must stay informed and proactive. In this blog, we will explore why understanding tax audit periods is crucial and how businesses can effectively manage their tax obligations to stay compliant and avoid costly errors.

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What is a Tax Audit Period?

The tax audit period refers to the timeframe during which tax authorities in the UAE can review a business's tax records and verify the accuracy of tax returns. This period starts after the submission of tax returns and can last for several years, depending on the complexity of the business and the nature of the tax involved.

In the UAE, the tax audit period primarily involves:

• VAT audits: These audits focus on verifying VAT filings, ensuring that VAT returns are accurate, and confirming whether the correct amounts have been remitted to the authorities.
• Corporate tax audits: Introduced under Federal Decree-Law No 47/2022, corporate tax audits assess whether the business is compliant with corporate tax requirements.

In both cases, businesses must prepare adequate records and documentation to ensure they can respond effectively if selected for an audit.

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Types of Tax Audits

​In the UAE, the Federal Tax Authority (FTA) conducts two primary types of tax audits to ensure businesses comply with tax laws:

1. Desk Audit

This audit is performed at the FTA's offices, where auditors examine submitted documents and financial statements without visiting the business premises. Desk audits typically focus on specific areas of concern or discrepancies found in tax filings.

2. Field Audit

In a field audit, auditors visit the business's premises to conduct a thorough examination of financial records, documents, and operations. This comprehensive audit may involve interviewing employees and scrutinising accounting practices.

Understanding these audit types is essential for businesses to prepare adequately and ensure compliance with UAE tax regulations.

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Federal Decree-Law No. 47/2022 and Audit Implementation

The United Arab Emirates (UAE) introduced Federal Decree-Law No. 47 of 2022, establishing a comprehensive framework for the taxation of corporations and businesses. Effective from June 1, 2023, this law imposes a corporate tax rate of 9% on income exceeding AED 375,000 for any given fiscal year, while income below this threshold is taxed at 0%. ​

Key Elements of the UAE Corporate Tax Audit Law:

• Tax Audit Notification Periods: The law outlines specific timelines within which the Federal Tax Authority (FTA) must notify businesses of tax audits, ensuring businesses have adequate time to prepare and comply.​
• Scope of Tax Audits: The audits encompass a thorough examination of a business's financial records, transactions, and compliance with tax obligations, aiming to ensure transparency and adherence to tax laws.​
• Voluntary Disclosures: Businesses have the opportunity to voluntarily disclose any discrepancies or errors in their tax filings, potentially mitigating penalties and demonstrating a commitment to compliance.​
• Limitations of Tax Audits: The law specifies the duration and extent of tax audits, providing clarity on the periods under review and the records subject to examination.​
• Dispute Resolution: Procedures are established for resolving disputes arising from tax audits, offering businesses a structured process to challenge findings or negotiate settlements.

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FTA Audit Timelines & Deadlines​

1. Corporate Tax Filing:

• Deadline: Businesses must file their corporate tax returns within 9 months after the end of their financial year.​
• Details: This timeframe allows businesses to prepare accurate financial statements and submit them to the FTA within the stipulated period. ​

2. VAT Return Filing:

• Deadline: VAT returns are due quarterly, though some businesses may be required to file monthly, depending on their specific circumstances.​
• Details: The FTA specifies the filing frequency for each business, which is indicated on the VAT certificate. It's essential to adhere to these schedules to remain compliant.

3. Record-Keeping:

• Requirement: Businesses are mandated to maintain detailed records, including tax filings, invoices, and bank reconciliations, for a minimum of 7 years.​
• Details: Proper record-keeping facilitates smooth audits and helps in resolving any discrepancies that may arise during the audit process.

Adhering to these timelines and maintaining accurate records not only ensures compliance with FTA regulations but also fosters transparent and efficient business operations.

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First Tax Period Under UAE Corporate Tax Law

Here’s a breakdown of how the first tax period applies to different types of taxable persons:

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Audit Triggers and Notification Process

Being proactive in addressing these triggers can help mitigate risks and ensure compliance with tax regulations.​

Common Audit Triggers:

• Tax Return Inconsistencies: Significant discrepancies between reported income and expenses can raise red flags for tax authorities.​
• Failure to File or Pay Taxes: Consistently missing tax filing deadlines or failing to remit payments can prompt audits.​
• Random Selection: The Federal Tax Authority (FTA) may conduct random audits to maintain overall tax compliance.

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Tax Audit Notification Process

Handling the tax audit notification process in the UAE requires careful preparation and adherence to regulations to ensure smooth interactions with the Federal Tax Authority (FTA). Understanding the key steps and best practices can help businesses avoid penalties and streamline the audit process.

Pre-Audit Preparation

1. Maintaining Accurate Financial Records

One of the most critical aspects of preparing for a tax audit is ensuring your financial records are accurate and up to date. This includes:

• Updating accounts: Ensure that your accounts reflect the necessary adjustments and comply with corporate taxation laws for effective tax management.
• Transaction records: Every business transaction should be documented correctly and maintained in an up-to-date manner.
• Legal documentation: Keep essential legal documents such as invoices, contracts, and agreements in order for easy access during the audit.
• Reconciliation practices: Regularly perform account reconciliations to manage working capital and maintain accuracy in financial reporting.

2. Adherence to UAE Tax Laws

Frequent reviews are necessary to stay compliant with UAE tax regulations and avoid any audit-related issues:

• Monitor legislative changes: Regularly check for updates or amendments in tax laws to ensure your business remains compliant.
• Timely filing: File complete tax returns on time to avoid penalties and ensure your tax records are up to date.
• Compliance checks: Conduct regular reviews of your tax filings and financial statements to identify any discrepancies before they are flagged during an audit.

3. Identifying Potential Audit Risks

It’s essential to assess potential weaknesses in your financial records and operations to prevent audit triggers:

• Inconsistent reporting: Look for areas where reporting may not align, such as discrepancies in income or expenses.
• Missing or incomplete records: Ensure that all documents are accessible and complete.
• Incorrect financial entries: Double-check for errors in the classification of transactions or expenses that might cause issues during the audit.

4. Appointing a Tax Audit Coordinator

Designating a dedicated coordinator to handle all audit-related tasks can streamline the process:

• Central point of contact: The coordinator should manage all communications with the FTA, providing auditors with the necessary documents and information.
• Access to records: Ensure the coordinator can easily access all records and documentation required for the audit process.

How to Respond to Notifications

When a tax audit notification is issued by the FTA, it is crucial to act promptly and efficiently:

1. Standard Time and Contact Person

• Respond to tax audit notices within Gulf Standard Time (GST).
• Identify a contact person responsible for liaising with auditors, ensuring smooth communication and quick responses.

2. Relationships with Auditors

• Document provision: Promptly provide all requested documents and ensure the auditor has everything needed to proceed.
• Staff management: Ensure the relevant staff members are available to lead discussions or interviews during the audit.

3. Meeting Deadlines

• Always observe the deadlines provided by the FTA and respond on time to avoid complications.
• Maintain clear communication with the auditors to ensure that the process runs smoothly and any necessary information is submitted promptly.

Post-Audit Procedures

After the audit is completed, it is essential to review the findings and take appropriate actions:

1. Review of Reports

• Carefully examine the auditor’s report to identify areas that require corrective actions or adjustments.
• Consult with stakeholders to implement necessary changes based on audit findings.

2. Adjustments and Fines

• If the audit reveals any discrepancies or penalties, ensure timely payments to avoid exacerbating the situation.
  
  
• Take appropriate corrective measures, whether related to accounting practices, tax filings, or internal controls.

3. Record Supporting Evidence

Safely store all evidence related to the audit for future reference in case further investigations or follow-ups are required.

Best Practices for Audit Readiness

Adopting a proactive approach can enhance your chances of successfully navigating a tax audit:

• Internal audit reviews: Conduct periodic internal audits to ensure that your financial records align with the UAE tax regulations.
• Tax audit period management: Understand the limits and deadlines for tax audits to remain compliant throughout the audit process.
• Employee education: Regularly educate employees about tax regulations to ensure compliance at all levels.
• Leverage technology and experts: Use professional tax advisors or technology tools to assist with audit preparation and enhance accuracy.

By adhering to these best practices and preparing in advance, businesses can ensure they are ready for tax audits and can handle any issues that arise during the process efficiently.

How Alaan Helps Businesses Stay Prepared for Tax Audits Under UAE Law

At Alaan, we understand that tax audits can be a stressful and time-consuming process for businesses. That's why our spend management platform is designed to simplify tax compliance and ensure you are always prepared for tax audits, particularly under UAE law. Whether you are preparing VAT returns or corporate tax filings, we streamline the entire process, making tax management easier and more reliable throughout the year. Here’s how we help:

1. Real-Time Tracking of Expenses for Accurate Reporting

With our platform, every business can track expenses in real-time through our corporate cards, automatically categorising them as they are incurred. This ensures your financial records are consistently updated so you can file accurate tax returns without scrambling at the last minute. 

2. Ensuring VAT and Corporate Tax Compliance

Our platform automatically validates your receipts as soon as they are uploaded, ensuring that all VAT components—like the Tax Registration Number (TRN), invoice formatting, and correct tax amounts—are accurate. This alignment with UAE tax regulations ensures that both your VAT and corporate tax filings are seamless, making tax preparation simpler and more reliable.

3. Effortless Receipt Handling

With our mobile app and Chrome extension, we make receipt management hassle-free. You can easily snap and upload receipts, and we automatically match them to the corresponding transactions. This eliminates the need to track paper receipts or search for missing documentation during audits, saving you time and effort when it matters most.

4. Customisable Controls to Ensure Compliance

We provide you with the tools to set merchant restrictions, spending limits, and approval workflows, giving you full control over your expenses. This ensures that every transaction aligns with your internal policies and complies with local regulations, reducing the risk of compliance issues before they arise.

5. Simple and Accurate Reconciliation

Our automated reconciliation feature links your expenses, receipts, and accounting entries, eliminating manual errors and ensuring that your corporate tax return is accurate and ready with minimal effort. This simplifies the reconciliation process and ensures that you meet tax deadlines without any last-minute scrambling.

6. Centralised Dashboard for Complete Financial Insight

With our centralised dashboard, you gain a comprehensive overview of your finances in one place. You can track spending, monitor policy breaches, and generate reports quickly. 

7. Automatic VAT Identification and Calculation

Our platform automatically identifies zero-rated and exempt supplies while handling VAT calculations with precision. By streamlining data collection and validation, it eliminates manual effort, reduces errors, and ensures accurate, fully compliant VAT reporting—saving you time and simplifying your tax management process.

By using Alaan’s expense management platform, we optimise your tax processes, ensuring that your business is always audit-ready. 

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Conclusion

Understanding the tax audit period is essential for businesses operating in the UAE. By staying informed about the notification process, response timelines, and the necessary documentation, businesses can ensure compliance and avoid expensive penalties. With the introduction of Federal Decree-Law No 47/2022, the UAE has established a clear framework for tax audits, and keeping up-to-date with these regulations will help businesses stay on the path to success.

At Alaan, we simplify your tax and spend management processes, ensuring your business is always prepared for audits. Our platform provides real-time tracking of expenses, automatic VAT compliance checks, and seamless receipt management to make tax reporting more efficient and error-free. We help businesses stay compliant with UAE tax regulations while giving you the tools to manage expenses and financial records effectively year-round.

Book a free demo today to discover how Alaan’s spend management platform can optimise your tax processes and keep your business audit-ready, ensuring compliance with UAE tax law.