Legal Framework, Rights, and Practical Strategies to Navigate FTA Tax Audits Confidently
I. Tax Audits in the UAE
For many companies operating in the UAE, the term „tax audit“ may evoke concerns due to the jurisdiction’s robust penalty framework. Under Federal Decree-Law No. (28) of 2022 on Tax Procedures, a tax audit refers to the process whereby the FTA examines commercial records and other data to ensure compliance with tax obligations. This process is not limited to registered taxpayers but may include any natural or legal person who falls under the scope of the law.
Audits are not conducted arbitrarily. They are typically initiated based on risk assessments or perceived irregularities in reporting. Those engaged in activities covered by VAT, Excise Tax, or Corporate Tax are particularly within the FTA’s scrutiny.
During an audit, the FTA reviews financial statements, wage documentation, asset registers, inventory records, contracts, and invoices. These documents must be retained for at least seven years, with an extension required if an audit is ongoing or imminent.
II. Differentiating Tax Audits from Financial Audits
While both tax audits and financial audits involve the examination of a company’s financial records, their objectives and methodologies differ significantly.
A financial audit is typically conducted by external auditors to assess whether a company’s financial statements present a true and fair view in accordance with applicable accounting standards. Its primary audience includes shareholders, investors, and regulators. The goal is to confirm that the financial reporting is accurate and reliable.
In contrast, a tax audit is conducted by the FTA to assess compliance with tax legislation. It focuses on whether the correct amount of tax has been declared and paid. The review may involve transactional details, the classification of revenue and expenses, and the timing of tax liabilities. Unlike financial audits, tax audits are not optional and carry legal consequences for non-compliance or misreporting.
III. Responding Strategically at Each Stage of an Audit
Preparation for a tax audit is a continuous process, not a reactive measure once an audit is announced. Businesses are required to retain all relevant records in a retrievable format, ideally integrated with accounting systems that ensure data accuracy and consistency.
Upon receiving notification of an audit—at least ten days in advance, as required—companies must:
- Verify the identification of FTA officers conducting the audit.
- Ensure audits take place during standard business hours, barring exceptional circumstances.
- Cooperate in providing requested information while safeguarding against disclosing irrelevant or excessive data.
Audit findings are typically shared within ten days of the audit’s conclusion. The taxpayer has the right to request supporting documentation from the FTA used in forming these conclusions within 20 days.
IV. Compliance Readiness and Procedural Diligence as a Legal Imperative
The legal landscape surrounding tax compliance in the UAE necessitates that businesses prioritize both documentation and procedural awareness. While the FTA possesses broad investigative authority—including conducting re-audits and temporarily sealing premises—taxpayers are afforded specific rights to transparency and due process.
To mitigate risk:
- Conduct internal or third-party mock audits annually to uncover and address discrepancies.
- Monitor the performance of ERP and accounting systems to ensure they generate accurate, audit-ready reports.
- Respond promptly but thoughtfully to FTA requests.
- Consider voluntary disclosure of errors ahead of audit notices to reduce potential penalties.
Voluntary compliance can significantly lessen penalty exposure, whereas delayed disclosure post-notification can result in penalties reaching twice the unpaid tax amount. Ultimately, businesses must view compliance not as a periodic task but as an operational standard, embedded in governance and reinforced by regular internal reviews.
V. Conclusion
Businesses operating in the UAE should interpret the onset of the Corporate Tax era and evolving compliance demands as an opportunity to reassess their tax governance strategies. Through structured preparation and legal awareness, enterprises can transition from fearing audits to managing them as routine regulatory engagements. By internalizing legal obligations and fortifying internal processes, companies can better navigate the complexities of tax compliance with confidence and clarity.
