As the Federal Tax Authority (FTA) increases its oversight, businesses in the UAE must be prepared for a Value Added Tax (VAT) audit. A VAT audit is an official inspection of a business’s financial records and VAT returns to verify compliance with the UAE VAT Law — Federal Decree-Law No. (8) of 2017. Preparation is key to minimizing the risk of penalties and disruptions to operations.
Understanding What Triggers a VAT Audit
The FTA may initiate a VAT audit for several reasons:
- Irregularities in VAT returns
- Claiming excessive input VAT
- Repeated VAT refunds
- Random selection as part of routine inspections
- Industry-specific risk assessments
Whatever the cause, your business must be able to justify every VAT-related transaction with adequate documentation.
Steps to Prepare for a VAT Audit
1. Maintain Proper VAT Records
The law mandates businesses to retain VAT-related records for a minimum of five years. These include:
- Tax invoices (issued and received)
- Credit and debit notes
- Import and export records
- VAT returns filed
- Trial balances and financial statements
- Contracts and agreements related to supplies
Ensure these documents are organized, preferably in digital format for ease of access.
2. Reconcile VAT Returns with Financial Statements
VAT outputs and inputs should match the values reflected in your accounting system. Regular reconciliation helps spot errors and omissions before the FTA does. Be prepared to explain differences, especially in zero-rated or exempt supplies.
3. Verify Tax Invoice Compliance
Each tax invoice must comply with Article 59 of the Executive Regulations, including:
- TRN (Tax Registration Number)
- VAT amount shown separately
- Date of supply
- Supplier and customer details
Missing or inaccurate invoices can result in the disallowance of input tax claims.
4. Audit Your Input Tax Deductions
Claiming input VAT is a key area of scrutiny. Make sure:
- Only allowable expenses are claimed
- There’s a valid tax invoice for each claim
- Business entertainment and personal expenses are excluded
5. Identify VAT on Imports and Reverse Charges
Ensure VAT on imports has been declared properly in Box 6 of the VAT return, and reverse charge mechanisms have been applied correctly for services imported from overseas suppliers.
Work With a Trusted Tax Consultant
One of the best strategies to stay audit-ready is to conduct a mock VAT audit or engage a professional firm to review your processes. That’s where PEAK Business Consultancy Services comes in.
PEAK BCS is a specialized VAT and Corporate Tax consultancy in the UAE, offering:
- VAT health check and mock audits
- FTA audit support and representation
- VAT return filing and corrections
- Staff training on VAT compliance
Visit www.peakbcs.com for more information or to schedule an audit readiness review with our experts.
During the VAT Audit: What to Expect
The FTA will send a notification detailing the scope of the audit and documents required. You may be given short notice, typically 5 working days. During the audit, officers may visit your office, inspect your digital records, and interview staff involved in VAT handling.
Key Do’s During the Audit:
- Cooperate fully with auditors
- Provide access to requested records promptly
- Ensure that authorized personnel are available for clarifications
- Document all communications for future reference
Post-Audit Actions
After the audit, the FTA may issue a notice of findings. If discrepancies are found, you may be liable for penalties, including:
- Late payment or under-declaration fines
- Penalties for incorrect filings
- Suspension of VAT refund eligibility
In such cases, it is crucial to act swiftly — file a Voluntary Disclosure if required, or appeal through the official process.
Conclusion
VAT audits are a normal part of operating a compliant business in the UAE. Being prepared is your best defense. By organizing your records, validating your tax positions, and engaging expert assistance, you can navigate the process confidently.
Let PEAK Business Consultancy Services be your partner in VAT compliance and audit readiness. With deep expertise and a client-focused approach, PEAK BCS ensures your business is protected, informed, and ready for any FTA scrutiny.
