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New Digital Technologies Enhance Tax Compliance Amid Surge in FTA Inspection Visits

The United Arab Emirates (UAE) has made significant progress in digitizing its tax administration in recent years. The Federal Tax Authority (FTA) has intensified its inspection efforts to ensure tax compliance, particularly concerning Value Added Tax (VAT) and the recently introduced Corporate Tax. Digital technologies, including Artificial Intelligence (AI), Blockchain, and automation software, are playing an increasingly vital role in helping businesses meet FTA requirements efficiently and mitigate compliance risks.

New Digital Technologies Enhance Tax Compliance Amid Surge in FTA Inspection Visits

FTA Increases Field Inspections to 93,000 in 2024, Seizing 11 Million Illegal Tobacco Packages and 3.9 Million Excise Beverages

In 2024, the Federal Tax Authority (FTA) in the UAE conducted 93,000 field inspection visits, marking a 135% increase compared to the previous year. These intensified inspections resulted in the seizure of 11 million illegal tobacco packages without digital tax stamps and 3.9 million excise beverages. The value of tax dues and associated fines exceeded AED 348 million. The FTA attributes this improved compliance to the adoption of advanced digital technologies and strategic partnerships, which have enhanced market surveillance and efficiency in detecting tax law violations.

Role of Digital Technologies in Improving Tax Compliance

The FTA attributed enhanced efficiency in compliance monitoring to the integration of advanced digital technologies. These technologies have enabled more precise tracking, inspection, and monitoring of smuggled and non-compliant products. The ‚digital tax stamp‘, introduced over six years ago, has proven to be an effective solution in preventing tax evasion.

These digital stamps are affixed to tobacco product packages and registered within the FTA’s database, containing electronically stored information that can be read using specialized devices. This system allows for accurate verification of tax payments, facilitating streamlined inspection and control processes at customs ports and markets.

Additionally, partnerships between the FTA and both government and private sector stakeholders have contributed to more effective market control and heightened tax awareness across the business community.

Legal Requirements and Increased FTA Inspections

The FTA is conducting more frequent inspections to prevent tax evasion and incorrect tax filings, with a focus on:

  • VAT Compliance: Proper invoicing, timely submission of tax returns, and accurate transaction recording.
  • Corporate Tax Compliance: Precise calculation of taxable profits, transfer pricing documentation, and timely tax return filings.
  • Economic Substance Regulations (ESR) and Country-by-Country Reporting (CbCR): Particularly relevant for multinational enterprises.

Non-compliance can result in substantial penalties, making it crucial for businesses to enhance their tax compliance frameworks.

TME Legal Takeaway

The FTA’s intensified regulatory efforts and the implementation of digital technologies have effectively enhanced tax compliance and market surveillance across the UAE. The substantial increase in inspection visits and significant seizures of non-compliant excise goods reflect the authority’s proactive approach to combating tax evasion.

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