Last Updated on
Tax income is an extremely important source of revenue for any country and hence taxes are crucial. The income from the taxes can be planned and invested towards the growth and development of the country including infrastructure, healthcare, etc. Hence, a tax audit is required to be conducted by the country for many businesses that have a large annual turnover. Tax audits in UAE are performed to ensure that the businesses are not engaging in any misleading and fraudulent activities. Tax audits also make filing income tax returns and their calculation a less cumbersome task.
It is a process carried out by domain experts. Through this process, the government of a country examines whether a particular business if fulfilling the responsibilities of paying taxes in a satisfactory manner or not and also to check whether there are no misleading or fraudulent activities being practiced by the business. In Dubai, this process of tax audit is conducted by the Federal Tax Authorities. They keep a tab on the payment of taxes on a timely basis by all the businesses in the country. The tax statements and the tax money is then transferred to the government and that money is then used for the growth and development of the economy as well as financing other needy aspects of the country.
The Process of Tax auditing
An auditor in UAE performs this job of conducting audits of different businesses. Let us look at the two main ways in which a tax audit can be carried out.
In this type of auditing, the process happens at the location of the company. The auditor visits the company location physically to perform the audit. Since all the data is available quickly at the premises of the company, the audit task does not take a longer time to get completed.
Auditing from office (Off-site)
Since the Federal Tax Authority is in charge of the audits happening in Dubai, in this method of auditing it will request the company officials to bring all the relevant documents for getting the details verified to the audit office locations. In comparison to on-site auditing, this may take a longer time to get verification as well as auditing is done as there are many processes and permissions to be granted and taken to keep the process running smoothly. The management of the business whose auditing is being done needs to give permission for the access of the data with great discretion to avoid any discrepancies and this is a time-consuming task which delays the whole process.
Prior to the audit process, a notice is issued to the company by the Federal Tax Authority. This notice is issued before five days from the day on which the audit is going to take place. It would provide all the important details and the timeline of the processes to be conducted during the audit. For example, the timetable of audit, the reason and venue of audit etc. This is informed on a prior basis as the company is expected to keep all the necessary documents, proofs, books, and other records ready and handy by the time the process starts. The companies in UAE can also be penalized if the documents they provide do not meet the requirements informed by the authorities. The companies who are being audited are expected to fully support all the auditors performing the audit and not involve in any activities which may cause hindrance to the process.
When a company in Dubai is suspected of tax evasion and fraud or if there is a doubt that the company will not be co-operating for the intended audit process, then the Federal Tax Authority can take a call on not providing any notice to the company of the tax audit and make a surprise visit.
The audit process is carried out over a certain span of time post which an audit report in UAE is generated by the Federal Tax Authorities and it is presented to the company. The report contains all the details of the audit processes including fraud investigation results, financial audits, etc. The company is involved in any such malicious practices, is liable for penalties for the same, and is notified according to the law for penalties. The process is usually carried out in the working hours of the Federal Tax Authorities unless there are some special cases for which provisions to work outside the working hours can be made.
What are the important documents which can be required in a Tax Audit?
The companies in UAE are notified before-hand as they are expected to get the documents ready by the time the audit process starts. Some documents which should be certainly kept ready for a smooth audit process are:
- Present inventory records
- Tax invoices
- Tax credit notes
- Goods and services disposal and exports records
- Records of goods and services used in the business
- Records of goods and services imported
- Book of accounts of the company with Balance sheets, Trial balance, ledgers, and P&L account statements.
Preparation for tax audits
The below list is of the reviews which need to be conducted before the tax audit process will start to be prepared:
- System review: ensuring the records have been maintained and recorded consistently
- Tax calculations review: the calculation of input and output taxes should be done according to the law to ensure accurate calculations.
- Tax return review: VAT returns is a tedious task. It should be ensured that the returns are filed in a correct way and the values are distinctly presented.
- Tax payments and their due date check-ups: if the authorities notice that there are some pending tax payments, then they should probably understand and if not paid, they can pay it up before the audit process to not draw any negative feedback.
There are several tax consultants in Dubai, UAE which can be hired to take the responsibility for the tiny details that have to be taken care of while managing the taxes and can be missed out which can lead to penalties. The team of consultants/auditors nowadays work under several financial services agencies that provide these services have great expertise in the domain of their work.