VAT is self-assessed! what it means is that as and when we file the VAT return in UAE, nothing is being asked by Federal Tax Authority (FTA) and our VAT return is accepted. However, it is important to note that mere submission of our VAT return does not mean VAT Assessment by FTA.
The FTA has the right to establish or verify a person’s VAT liability by way of a tax audit. Under the tax audit process, the FTA is entitled to examine the records required to be preserved by a taxable person under the law and to generally inspect the circumstances of their business. A tax audit may be carried out at the taxable person’s business premises (i.e. a “field tax audit”) or in the offices of the FTA. Generally, prior notification of a tax audit will be given. In the process of carrying out a tax audit, the FTA may make copies of, take extracts from, or samples of any information or goods as it may deem necessary.
As we have completed over one year of VAT in UAE by now hence it is high time that the business must get ready to be audited by FTA for their VAT compliance.
What Records a Business Need to Get Ready for Audit
VAT audit is normally conducted to check the VAT compliance and ensure that VAT liability is calculated and paid by the taxable person in accordance with the applicable VAT laws and regulations. As a business, you must maintain both commercial and Accounting records and make it available to Tax Auditor as and when asked.
Accounting Records and Commercial Books shall include the following: Accounting books in relation to that Business, which include records of payments and receipts, purchases and sales, revenues and expenditures, and any business, and any matters as required under any Tax Law or any other applicable law, including:
- Balance sheet and profit and loss accounts.
- Records of wages and salaries.
- Records of fixed assets.
- Inventory records and statements (including quantities and values) at the end of any relevant Tax Period and all records of stock-counts related to Inventory statements.
- All tax invoices and alternative documents related to receiving the goods or services
- All received tax credit notes and alternative documents received
- All tax invoices and alternative documents issued
- All tax credit notes and alternative documents issued
- All supplies and imports of goods and services
- Exported goods and services
- Goods and services that have been disposed of or used for matters not related to business
- Goods and services purchased for which the input tax was not deducted
- VAT due on taxable supplies (incl. those related to the reverse charge mechanism)
- VAT due after error correction or adjustment
- VAT deductible after error correction or adjustment
- VAT deductible for supplies or imports
- Any other document that may be required by FTA for conducting the VAT Audit
How to Keep the Records
The obligation to maintain Accounting Records and Commercial Books shall be met through any of the following:
- Creating the record and the retention of original Documents which support the entries contained in the record.
- Creating the record and preserving the information that was contained in the original document, provided that:
- The information matches the data contained in the original document and shall be available during the audit periods.
- The information retained or stored in either photocopy or electronic form, and an easily readable copy of it can be reproduced within a reasonable period if requested by the Authority.
The timing of the Tax Audit
A Tax Audit will be conducted during the official working hours of the Authority. In cases of necessity, a Tax Audit may be exceptionally conducted outside such hours by the decision of the Director-General.
Conclusion
The way to appropriately comply with VAT Laws and come clean in VAT Audit is to ensure the completeness and accuracy of both accounting and commercial records. Having a good accounting software/ERP system can greatly help in this regard.
Experts at Lynchpin can help you ensure your VAT Compliance and can handhold you during your VAT Audit preparation. Call us at +971-4-4370704 or write to us at info@lynchpinconsulting.com.