One of the key aspects of corporate tax compliance in the UAE is the audit process, which is a thorough examination of the financial statements, tax declarations, and supporting documents of taxable entities by the Federal Tax Authority (FTA). The most recent Ministerial Decision 74 of 2023, as mandated by the Ministry of Finance (MOF), has established the core principles governing the Audit Procedure within the framework of Corporate Tax in the United Arab Emirates. The main purposes of the audit process are to verify the accuracy and completeness of the reported information and to assess compliance with corporate tax laws and related regulations. This article provides a detailed overview of the audit process, its significance, and its implications for businesses seeking to optimize their tax positions.
The FTA has the authority to conduct audits within five years from the end of the relevant tax period or from the date of filing the tax declaration, whichever is later. This means that the FTA can audit any tax period or tax declaration within five years from its completion or submission. However, in cases of suspected tax evasion or fraud, the FTA can extend this audit period by another five years, giving it a total of 10 years to conduct audits. The FTA must notify the taxable entity at least five business days before the audit date unless it anticipates that the taxable entity may obstruct the audit process.
The audit process can take place at the FTA's office at the taxable entity's place of business, or any other location where the taxable entity conducts its business activities. The FTA can choose the most suitable location for the audit, depending on the nature and scope of the audit. During the audit, the taxable entity is obliged to provide the FTA with all the information, documents, records, and data that the FTA requests within the specified time limits. The taxable entity must also facilitate the FTA's access to its premises, assets, and employees to ensure a comprehensive examination.
After completing the audit, the FTA issues a detailed report that includes the findings, observations, recommendations, and any assessed tax liabilities, whether due, refundable, or overpaid. The report summarizes the results of the audit and highlights any discrepancies, errors, or violations that the FTA identifies. Based on the audit report, the FTA makes an assessment or reassessment of the taxable entity's tax liability, which is the amount of tax that the taxable entity owes or is entitled to. The taxable entity receives a copy of the audit report and the assessment or reassessment and has the right to object within 30 days, by submitting an objection form and supporting evidence to the FTA.
If the taxable entity disagrees with the audit report or the assessment/reassessment, it can challenge them through an objection process. The objection process involves submitting an objection form and supporting evidence to the FTA within 30 days of receiving the audit report or the assessment/reassessment. The FTA reviews the objection and the evidence within 30 days and may accept, reject, or amend the objection. The decision with expressly given reasons for acceptance/rejection or modification passed by the FTA would be conveyed to the taxable person within the stipulated time. If the taxable entity is not satisfied with the FTA's decision, it can appeal to the competent court within 30 days of receiving the FTA's decision.
An important aspect of the audit process is the imposition of penalties or fines for non-compliance or violations of UAE corporate tax laws and regulations. These penalties or fines are intended to deter and punish non-compliance or violations and to ensure fairness and transparency in tax-related matters. The FTA may impose penalties or fines for various infractions, such as late filing, delayed payment, incorrect declarations, failure to maintain records, obstruction of audit processes, or outright tax evasion. The FTA notifies the taxable entity of the penalties or fines and the reasons for them. The taxable entity has the right to appeal the penalties or fines within 20 days from receiving them, by submitting an appeal form and supporting evidence to the FTA. The FTA reviews the appeal and the evidence within 20 days and may accept, reject, or amend the appeal. The decision with expressly given reasons passed by the FTA would be conveyed to the taxable person within the stipulated time.
The audit process is a vital mechanism for ensuring corporate tax compliance in the UAE. It involves a thorough examination of the financial statements, tax declarations, and supporting documents of taxable entities by the FTA. The audit process aims to verify the accuracy and completeness of the reported information and to assess the compliance with the corporate tax laws and related regulations. The audit process also results in an audit report and an assessment or reassessment of the tax liability, which the taxable entity can object to or appeal. The audit process may also lead to penalties or fines for non-compliance or violations, which the taxable entity can also appeal. Therefore, taxable entities need to understand and comply with the audit process, as it affects their tax position and obligations. By doing so, they can optimize their tax strategies and ensure sustainable growth and compliance.
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Kasun Liyanage is an Audit Manager with over 7 years of experience dealing with diversified corporate clients. He not only manages the team’s work schedule but also is an expert in handling audit areas such as external audits and fraud investigation, Internal control benchmarking and best practices and well as preparation of financial statements and IFRS compliance.