Taxes are essential for running a country as tax funds are used for growth and development purposes. Tax audits help governments and companies to know if there is any illegal activity going on in the premises like slush funds, tax fraud, corporate fraud, etc.
The government of UAE introduced a VAT on 1st January 2018. The rate of Value Added Tax (VAT) in the UAE is kept at 5%. Auditing is essential for any organization as it allows you to monitor financial transactions, measure performance, detect fraud, and increase productivity. The article gives insight into ways how you can prepare for VAT audit before the official FTA notice so you can avoid penalties.
What is VAT Auditing in Dubai?
VAT auditing is a formal examination of a company’s VAT documents and ledgers and all the sales and expenditures accounts. The Audit is conducted by federally approved tax companies and agents. The Audit also assesses the sales and purchase tax invoices to ensure that the company has all the liabilities cleared, and no tax is due for a specific time frame.
Experts from the best VAT consultancy in Dubai can aid you in preparing for the tax audit by compiling all the necessary documents and financial records, analyzing the VAT transactions made within a tax period. It is also essential for precise record keeping of all the VAT proceedings based on UAE regulations.
How should you prepare for a VAT Audit?
Following are some of the tips to help you prepare for a VAT Audit:
- Make sure you are following all the FTA guidelines.
- Conduct a pre-audit thorough check to correct errors in the financial records.
- Conduct reconciliation between the VAT returns and financial statements regularly to correct mistakes.
Corrections before FTA Audit
Preparing for an FTA audit is essential to avoid getting penalized after the FTA notice in case of miscalculations in the financial records. For a well-organized VAT audit, you can also opt for the best VAT consultancy in Dubai to help you with preparation before the FTA audit notice.
The following are some of the outcomes of a VAT audit conducted before the official FTA audit.
- The Audit would provide the management with accounting reports highlighting areas that need further observation and correction.
- The Audit will reveal areas for adjustment so the company will have enough time to prepare voluntary disclosures and submit it to the FTA before the official Audit.
- If the impact is above the voluntary disclosure benchmark of AED 10,000, then the authorities will make adjustments, but if it is below the requirement, adjustments will be made in the next tax period.
Advantages for VAT Audit Preparation
The following are some of the benefits of VAT audit preparation before the official FTA audit.
- The company can assess its VAT compliance with the FTA guidelines and regulations, so chances for FTA penalties and fines are significantly reduced.
- One of the foremost advantages is that the company will be fully prepared for an FTA Audit.
- Management can clear any ambiguities regarding VAT procedures FTA guidelines.
- The company can file for voluntary disclosure if required, before the FTA Audit notice to avoid penalties.
Things you should know about FTA Audit
Federal Tax Authority conducts Audits of companies whenever the government wants to examine a company’s financial situation and dealings. It ensures that there is no fraud or corporate crime taking place on your company premises. Following are some of the things you should know about the Tax Audit:
- During a tax audit, the FTA has full authority to access to all the financial statements from every department of the company so they can verify company assets. The tax auditor has full authority to inspect the following:
- The premises.
- Financial documents are available at the premises.
- All the assets on the premises.
- Under the Cabinet Resolution No (40) of 2017 Administrative Penalties for Violations of Tax Laws in UAE, during the Tax Audit, the person in charge of the company should fully assist the government tax auditor with any requests and information. Failure to comply is treated as an offense and can incur a penalty of 20,000 AED.
- According to the FTA laws, the Tax Auditor has to inform 5 working days before the official Audit taking place in the respective company.
- In case the authorities have a piece of reliable evidence against the company and believe that the organization is involved in tax evasion. The tax auditor has legal authority to enter the company premises and shut down the company for a maximum of 72 hours without prior notice.
- Following are some of the ways how FTA gives notification before the tax audit:
- Registered post
- Electronic email
- Posting the notification document on company premises
Review Accounting Systems to ensure smooth operation
For a company to keep operating smoothly, a systematic approach is essential. Review your financial and accounting reports regularly to make sure there is no room for fraud and risks. Examine all the tax records system to ensure that you are prepared for the annual FTA tax audit.