VAT Audit – 10 Things You Can Do To Prepare Yourself For It

It has been 3 years since VAT has been introduced in UAE for the supply of goods and services. The UAE government introduced VAT on January 1st, 2018. It has been recommended for companies to complete their VAT audit by approved tax agents in UAE.

This is because tax experts who understand the regulations set by the Federation Tax Authority (FTA) will determine tax compliance and help companies to pay the taxes. It is expected that around 90% of the VAT registrants will pay their tax returns this year.

What is Tax and Tax Year?

Tax is a mandatory fee imposed on the taxpayer by the government to collect revenue and use it for public works such as providing infrastructure and other facilities for the country. A Tax Year is twelve months covered to pay tax returns. Individuals or companies can complete their tax returns monthly, quarterly, or yearly as mentioned by the FTA during the registration.

What is Tax / VAT Auditing in UAE?

Tax or VAT auditing is a simple procedure of examining a company’s documents like sales invoices, purchase ledgers, etc, by the approved tax agents. It ensures whether the company has cleared all the liabilities and paid all the taxes properly. The VAT auditing returns must be filed by the companies in a required format within the timeframe given by the FTA.

VAT Readiness

For smooth business operations, a systematic approach is essential. UAE-based companies should evaluate and review their business activities every day. If they focus on following the below points, there won’t be any confusions in VAT auditing:

1. Understanding –The most important thing is understanding the operational processes and business domains. It will help companies to determine the faults internally.
2. Preparation –Internally, prepare a checklist and formulate an implementation strategy.
3. IT Systems –Ensure that all the company’s IT systems are VAT-enabled. Add Enterprise Resource Planning (ERP), accounting, and point-of-sale systems as well. Follow all legal regulations for completing implementation to comply with the tax requirements.
4. Current Accounting –Keep your accounting book up to date. To become VAT-liable, the time of supply is very important.
5. VAT Accounting –Tax returns need to be submitted to the government periodically. So, make sure you have all the correct account details and VAT codes set up for generating the tax return.
6. VAT Return –Ensure your outgoing and incoming invoices are VAT-compliant, on both sales and supply fronts.
7. Employees –Ensure your employees know about VAT. If not, educate them. Mention VAT duties and responsibilities in the employees’ contract papers.
8. Public Officer –Appoint a knowledgeable public officer to represent your company before the VAT authority. Make sure he is suitable and prepared for the job.
9. VAT Guide –Maintain a policy manual for your business to cover the company’s VAT policies.
10. Contracts –Educate your contracts regarding VAT regulations and change of policies.

Advantages of VAT Audit Preparation

With the VAT enabled IT systems in place and a public officer being appointed,

1. The company can easily assess its VAT compliance with the FTA guidelines and regulations. This way penalties can be significantly reduced.
2. The company can easily face the FTA audit and answer any questions if required.
3. The company can voluntarily call for an FTA audit and avoid penalties.

Conclusion

Federal Tax Authority or FTA is a government authority that conducts the VAT audit to examine the company’s financial status. Audit assessment ensures that no faulty transactions are happening in your company. They have the full authority to ask for any financial statement of any department in the company. So, it is recommended to have knowledge about VAT audit procedures and follow the guidelines set by the authority for a company to keep operating smoothly.