Corporate Tax Audit: Audit Report for Corporate Tax in UAE

In the UAE, companies operate in a more structured financial and tax compliance environment due to the recent implementation of corporate tax regulations. As businesses adjust to this new framework, one pressing concern is rising across all sectors. That is a corporate tax audit by the Federal Tax Authority (FTA).

In order to make sure that companies are accurately reporting their income and responsibly adhering to tax laws, a corporate tax audit is required in the United Arab Emirates. During this audit, FTA carefully examines the company’s financial records, tax returns, and all the supporting documentation. 

In this article, we briefly explain corporate tax audits in the UAE. We explain what a tax audit is, who may be audited, how to prepare, what documents are required, what the audit process includes, and what penalties could apply for non-compliance. At Now Consultant, our certified corporate tax consultants help you throughout the process for corporate tax audits in compliance with the UAE regulations.

What Is Corporate Tax Audit In The UAE?

A corporate tax audit is a mandatory review conducted to examine the tax obligations of businesses under the UAE Corporate Tax Law. The process involves an official inspection of a company’s financial records, tax returns, and transaction details by the Federal Tax Authority (FTA). The objective of this audit is to confirm that the company has correctly calculated, filed, and paid its corporate taxes in accordance with UAE tax regulations.  

A corporate tax audit is also important to find any discrepancies, mistakes, or omissions in the company’s corporate tax liability. The FTA in the UAE has the authority to conduct an audit on any taxable entity in accordance with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

Who Is Subject To a Corporate Tax Audit In The UAE?

In the UAE, corporate tax audit is conducted based on predetermined legal and financial thresholds rather than at random. Ministerial Decision No. 82 of 2023 states that the following companies must prepare and maintain audited financial statements as given below:

Who Earns More Than AED 50 Million:

A taxable person must keep audited financial statements if their revenue during the applicable tax period exceeds AED 50 million. This revenue threshold is a key trigger for a corporate tax audit. 

Qualifying Free Zone Persons (QFZPs):

In addition to high-revenue companies, Qualifying Free Zone Persons are required to maintain audited financial statements. These entities benefit from specific tax incentives under the UAE Corporate Tax Law, and as such, the FTA closely monitors their compliance.

Preparing Your Business For a Tax Audit In Dubai

It is important to follow proactive planning in order to prepare your business for the corporate tax audit. For that purpose, you need to follow the following measures: 

Organize Financial Records:

You need to organize all your financial records, including invoices, receipts, ledgers, and bank statements. The organized records help validate your tax filings during an audit. Disorganized or missing records can raise concerns with the FTA.

Maintain Proper Accounting Systems:

You must use trusted accounting software that accurately tracks all financial transactions. Your reported revenue in tax returns should match the actual figures in your system. A structured setup reduces errors and audit risks. It also ensures easier access to financial data when required.

Conduct Internal Audits:

You need to conduct internal audits to spot and fix errors in your financial records before the FTA finds them. Through these regular checks, you can keep your business aligned with tax laws. Timely error detection prevents penalties and builds trust with authorities.

Understand Tax Regulations:

You need to understand the tax regulations of the UAE, including corporate tax and VAT rules. With this understanding, you can ensure that your financial matters are aligned with these regulations and following the right procedures. With this information, you can avoid common compliance mistakes and strengthen your audit preparation.

Review Your Tax Returns:

You should review previously submitted tax returns of your business to confirm accuracy and consistency. You have to ensure that all taxable income, expenses, and deductions are correctly reported. In the review process, you can analyze any reporting errors and correct them early to reduce the chance of audit issues.

Corporate Tax Audit Process In The UAE

The following is the step-by-step process for a corporate tax audit in the UAE: 

Step 1: Selection for Audit

The first step is the selection of companies for corporate tax audit in the UAE by the Federal Tax Authority (FTA). The selection of companies for audit has multiple reasons that include

exceeding turnover limits, operating in high-risk industries, showing sudden changes in income, or sometimes through random selection by the FTA. The selection for audit does not mean there is some issue; it can be a routine check by the authority.

Step 2: Notification and Initial Meeting

In the second step, the FTA notice is received by the company if it is selected for the corporate tax audit. This notice outlines the purpose, timeline, and scope of the audit. During the initial meeting, the FTA explains the documents required and sets up how they will communicate with your business throughout the audit process.

Step 3: Prepare for the Audit

Following the notification, the company needs to start preparations for the audit by collecting all necessary documents. These include audited financial statements, filed tax returns, and supporting records arranged by financial year and category. It is a very important task; therefore, you need to hire an approved corporate tax consultant in the UAE.

Step 4: Conducting the Audit

At this stage, the FTA registered auditor carries out the actual audit process. The authority examines whether your company has correctly calculated, collected, and paid corporate taxes as per the UAE Corporate Tax Law. The auditor ensures that tax filings are accurate and that payments are made on time, verifying all financial activities and compliance measures.

Step 5: Issuance of the Audit Report

Finally, once the audit is complete, the auditor prepares a detailed audit report. This report highlights whether your company’s financial records are accurate and whether it followed tax rules correctly. The audit report adds value by enhancing transparency for shareholders, potential investors, and the regulatory authorities.

Essential Documents Required for a Tax Audit In UAE:

The following are the required documents for the corporate tax audit in the UAE:

1. It is essential to have audited financial statements for the particular tax period under audit. These consist of the cash flow statement, income statement, and balance sheet.
2. All corporate tax returns filed within the last several years should be prepared.. 
3. In order to confirm revenues and expenses, both sales and purchase invoices are included.
4. Payment receipts related to business transactions and tax payments.
5. Statements for all business bank accounts to confirm cash flow and transactions.
6. Business contracts include leases, supplier contracts, and customer service contracts.
7. Tax withholdings, bonus plans, and employee salaries for the audited period, if applicable.
8. Documents that demonstrate how assets have depreciated over time, as stated in the financials.
9. Evidence of dates and amounts of tax payments made to the FTA.

Penalties and Compliance Criteria In Corporate Tax Audits

In case of non-compliance with the corporate tax audit, your business may face the following penalties: 

Penalty for Failure to Register for Corporate Tax:

Businesses that do not register for UAE Corporate Tax by the deadline will be subject to a fixed penalty of AED 10,000 as of March 1, 2024. According to the Federal Tax Authority (FTA), this pertains to all taxable individuals who fail to submit their registration applications timely manner.

Late Corporate Tax Filing Penalty:

Businesses that postpone filing their corporate tax returns are also subject to fines under the FTA. For the first 12 months of the delay, there is a 500 AED monthly penalty. Following this time frame, the penalty rises to AED 1,000 per month for each extra month the return is not filed.

Penalties for Non-Compliance and Inaccurate Filing:

Financial penalties may also result from inaccurate filings, late payments, or improper record-keeping. Fines can vary from AED 500 to AED 20,000. These penalties emphasize on significance of accurate reporting and keeping appropriate records throughout the tax year.

What Does a Corporate Tax Audit Report Include?

A corporate tax audit report in the UAE is an official document prepared by the Federal Tax Authority (FTA) after completing an audit of a company’s tax affairs. This report is comprised of the following parts:

1. Compliance Overview:

The report begins with a detailed comparison between the income declared by the company and the financial records reviewed by the FTA. This section verifies whether the business has followed corporate tax regulations correctly, including income reporting, deductible expenses, and tax calculations.

2. Identified Issues and Discrepancies:

If the FTA finds any differences or errors, they are clearly explained in this part of the report. This can include undeclared income, mistakes in VAT reconciliation, ineligible expense claims, or missed filings. The section provides clarity on the nature and possible impact of these issues.

3. Suggested Adjustments:

Based on the above findings, in this section, the FTA may ask the company to revise its previous tax filings. This can involve correcting errors, providing additional documentation, or updating returns to reflect accurate data.

4. Conclusion and FTA Decision:

In the final part of the report, the FTA shares its official conclusion. If no major issues are found, the original returns may be accepted. However, if discrepancies are confirmed, the FTA will issue revised tax assessments and apply penalties where necessary.

Why Choose Us For Tax Audit?

It is difficult for business owners to handle the task of a corporate tax audit without expert guidance. In case of any error in documentation or failure to meet compliance standards can result in heavy penalties. At Now Consultant, our team of experienced corporate tax consultants helps you at every step, whether it is organizing your financial records, submitting accurate tax returns, or preparing for FTA inspections. 

Our tax consultants ensure that your business meets all legal requirements without delays or errors, helping you avoid costly penalties. Our experts do not just offer support; they provide complete solutions for all financial problems. From the moment your company is selected for an audit to the issuance of the final audit report, we assist you with full accuracy and up-to-date knowledge of UAE tax laws.