No matter what industry you are in, there is a good chance that you will have to be audited at some point. Whether you chose to do an internal audit, an external one or you have an FTA-conducted one, you need to ensure that your company is ready.
Keep reading for the five essential steps you need to take to prepare your company for a tax audit in the UAE.
1. Understand the Tax Audit Process.
To ensure that your company is prepared for a tax audit, you need to make sure that you thoroughly understand the process. Taking some time to do your homework will save you a lot of time and stress in the long run. In the UAE, tax audits occur when the government assesses a company regarding their tax responsibilities. The FTA conducts these audits with the intention of ensuring that all the necessary taxes and liabilities were paid within the appropriate time frame.
The FTA is authorized to conduct audits of any company whenever they want. There doesn’t need to be a specific reason; it is according to their own discretion. If your company is going to be audited, you will receive a notice at least five days before your scheduled audit date. This notice will detail the schedule, location, and affected parties. Keep in mind that you always have the right to request to see the credentials of the tax auditors to ensure that they are who they say they are.
Alternatively, you can opt to have the process conducted by an external auditor in Dubai. While every external audit is different, depending on the scope, they can only be carried out by registered audit and accounting firms. By having an external audit conducted, you will be in a better position to recognize the critical risk areas of your firm and avoid potential FTA-conducted audits in the future.
2. Prepare Your Documents.
If your company is going to be audited, you must have the necessary documents prepared to avoid any problems. As a business owner, it is vital that you maintain proper records. Unfortunately, companies that are not organized with the correct documentation and financial records will have a much harder time during the auditing process.
Hopefully, before you get audited, you already have a filing system in place that stores your yearly primary and secondary tax records and a personal filing system that contains your tax returns. If this is the case, then you will certainly be (mostly) prepared should you receive a notice that you are being audited. Ideally, it would be best if you kept all of your tax returns and back up information for the past five years.
Generally, in the UAE, companies that are being audited need to present:
- An inventory record with the appropriate receipts and tax invoices
- All tax invoices and tax credit notes
- A record of goods and services that have been used or exported
- A record of goods and services being imported
- Books of accounts
Keep in mind that the more organized you are, the more points you will win with the auditor. After all, you are making their job easier! And, they will be more likely to believe that your organized paperwork is reliable.
3. Conduct a Review.
Once your documents are gathered, you want to start conducting a selection of reviews to ensure that you are prepared. First and foremost, review the system that you use to do your bookkeeping and accounting work. Whether you utilize software or do it by hand, you want to look through the records to ensure that there are no inconsistencies. While you are reexamining the documents, you want to verify the calculation of output and input taxes.
Finally, you also want to review your VAT returns to ensure that they were prepared correctly and filled out with the appropriate figures and information. The purpose of this review period is to ensure that the financial statements you have made present an accurate and fair picture and follow the reporting standards.
If you find that you are missing records or documents, you need to track down duplicates immediately. The last thing you want to do is attend the auditing procedure and have to admit that you have missing or lost records.
4. Act Professionally.
There is no denying that the auditing process is an overwhelming and potentially scary time for all business owners. No one wants to go through this process; however, no matter how stressed and worried you are, you need to act professionally throughout. Find a way to control your emotions and refrain from taking them out on your auditor – that is going to get you nowhere.
Keep in mind that these people are not out to get you; they are just trying to do their job. The more courteous you can be, the easier the process will be for everyone involved. If you don’t think you will be able to keep your emotions under control, then it may be best to hire a qualified representative to take your place instead of you dealing directly with the auditors.
5. Utilize the Services of a Professional.
In order to reduce the likelihood of being audited, and to make sure that you are prepared if it does happen, your best option is to work with a qualified tax professional. By working with a team of experienced professionals who offer tax consultancy services, you can be assured that you are continuously in compliance with the UAE tax laws.
Additionally, opt to conduct regular external audits as these will help you to recognize your firm’s loopholes and enable you to make changes before they become a problem. After conducting an external audit, these audit experts will work with you to plan actions accordingly. They will follow up with you continuously to make sure that the necessary steps are being taken.
Has your company ever been audited? What did you do to prepare? Do you have any additional tips to share with others who are going through a similar experience? Let us know in the comments below.
Stany Pereira is the Managing Partner at PKF UAE. He is a Fellow Chartered Accountant who has been with PKF since 1987 and has been responsible for the development and management of the firm’s practice. He has an overall experience of over three decades in audit and assurance services. Stany also oversees the tax and structuring practice of the firm.