UAE FTA VAT Audits — What Can You Expect?

Following Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures and Federal Decree-Law №18 of 2022 (Amended Decree Law), effective from January 1st, 2023, VAT returns serve as a legally binding statement of an entity’s tax liabilities, constituting a self-declared assessment. It is incumbent upon the taxable individual to ensure the accuracy and thoroughness of these declarations, as they are subject to scrutiny by the UAE Federal Tax Authority (FTA) to verify compliance with prevailing legislation.

Since the inception of VAT in 2018, the statute of limitations spans five years, rendering VAT declarations beyond 2023 immune to FTA VAT audits. Hence, the fiscal year 2023 marks the final opportunity for the FTA to initiate audits or enforce provisions under the Amended Decree Law. However, Article 79 of the Amended Decree Law grants the FTA an extension of four years to conduct audits, provided it issues a notice for audit or assessment before the expiration of the general five-year statute of limitations.

Understanding the intricacies of VAT return obligations and auditing procedures in the UAE is imperative for businesses to ensure compliance and mitigate potential risks. By adhering to regulatory requirements and maintaining accurate records, entities can navigate the VAT landscape with confidence and minimize exposure to penalties or sanctions.

Key considerations for businesses include:

1. Preparation and Accuracy: Taxable individuals bear the responsibility of diligently preparing VAT returns, ensuring they accurately reflect their tax liabilities. Any discrepancies or errors may result in regulatory scrutiny and potential penalties.
2. FTA Audits: The FTA reserves the right to conduct audits to verify the accuracy of VAT declarations and assess compliance with tax regulations. Businesses should be prepared to provide supporting documentation and cooperate with FTA auditors during these processes.
3. Statute of Limitations: The five-year statute of limitations dictates the timeframe within which the FTA can initiate audits for VAT declarations. However, Article 79 of the Amended Decree Law allows for a potential extension of four years under certain circumstances.
4. Compliance and Record-Keeping: Maintaining meticulous records of transactions and VAT-related documentation is essential for demonstrating compliance with regulatory requirements. Robust record-keeping practices can facilitate smooth audits and mitigate potential disputes.

In conclusion, navigating the VAT landscape in the UAE requires a comprehensive understanding of return obligations, auditing procedures, and statutory limitations. By prioritizing compliance, accuracy, and proactive engagement with regulatory authorities, businesses can effectively manage their VAT obligations and uphold their fiscal responsibilities by prevailing legislation.