Did you get your FTA Audit notification and don’t know where to start? Here’s a comprehensive guide that will give you your very own FTA Audit Checklist for compliance. Lets start with answering the common question: What is an audit? An audit, in the context of taxation, is a thorough review of a company’s financial records to ensure accuracy and compliance with tax laws.
The FTA (Federal Tax Authority) plays a vital role in ensuring businesses comply with tax regulations through regular audits. These audits help maintain the tax system’s integrity by identifying discrepancies and enforcing compliance. Continue reading the blog to get to know more about the FTA audit process and what you need to do to prepare for it.
What You Must Know About The FTA Audit Process In UAE
An audit in the UAE is part of the internal processes and guidelines that businesses must follow. It can be carried out at the business premises or the FTA office. The audit involves examining the company’s tax records and ensuring all financial systems are processed correctly.
During the audit, the auditor checks documents to ensure compliance. At the end of the audit, the FTA provides a final report listing any mistakes found and possible penalties. If necessary, a re-audit can be conducted.
What Triggers A UAE FTA Audit
A tax audit in the UAE can be triggered by various factors. The timing of such audits is unpredictable, but several criteria can increase the likelihood. The FTA system can flag exceptions and anomalies based on payment positions, owed taxes, sector comparisons, and return variations.
Certain businesses, such as cash-based operations or those involved in customs, duty processes, or refund claims (like exporters, healthcare, and education), are more prone to audits. Additionally, being part of a supply chain with audited customers or suppliers, the volume of business operations, and public referrals to the FTA can also raise audit risks.
FTA Audit Checklist Preparation
Key Steps To Prepare For An FTA Audit Checklist
- Business Information Submission:
The FTA may request businesses to submit their information, which will be verified against the details declared in VAT returns or other tax returns. - Audit Initiation:
The tax audit process is initiated once the business information is submitted. - Audit File Preparation:
Businesses must prepare an audit file in the FTA-prescribed format. The expectation is that the tax accounting software used by the business should be able to generate the audit file in FTA Audit checklist File (FAF) format.
For detailed requirements, refer to the FTA’s document on tax accounting software requirements here.
Detailed FTA Audit Requirement
The format of the FTA audit checklist file should be in ‘comma separated value’ (.csv) and should include the following details:
Company Information
| Detail | Description |
| Taxable Person Name (English) | Name of the taxable person in English |
| Taxable Person Name (Arabic) | Name of the taxable person in Arabic |
| TRN (Tax Registration Number) | Unique Tax Registration Number |
| Tax Agency Name | Name of the tax agency |
| TAN (Tax Agency Number) | Unique Tax Agency Number |
| Tax Agent Name | Name of the tax agent |
| TAAN (Tax Agent Approval Number) | Unique Tax Agent Approval Number |
Supplier And Customer Details
| Detail | Description |
| Location | Country or Emirate (if in UAE) |
| TRN | Tax Registration Number, if applicable |
| Tax Codes | Codes like ZR for Zero-rated supplies |
Transaction Details
| Detail | Description |
| Invoice No | Document number |
| Permit No | If available |
| Invoice Date | Transaction date |
| Transaction ID | Reference ID identifying the transaction |
| Line No | Line number of the invoice (for multiple items) |
| Debit and Credit Amount | In actual currency and converted to AED |
| VAT Amount | In actual currency and converted to AED |
| Payment Date | Date of payment transaction |
Additional Details
| Detail | Description |
| Description of Goods and Services | Details of goods and services provided |
| VAT Code | Applicable VAT code |
| Adjustments | Details of adjustments like journal entries |
| Rounding Off Comments | Indicate if rounding off is used |
Ensure all these details are captured accurately in the FTA Audit File (FAF) to comply with the audit requirements. For expert advice, contact professionals at BestaxCA to minimize penalties and get your work done seamlessly.
Timing Is The Key During FTA Audit Process
You might have heard that early birds catch worms, which is the case when you are preparing to file your FTA Audit. If we are prepared well before FTA sends the Audit notification, you will able to:
- Quickly respond to FTA document requests and questions within the typical 5-day response time.
- Reduce the time needed to prepare audit files.
- Lower the value of penalties by declaring errors in advance:
- Self-declared errors result in penalties ranging from 5% to 40% of the tax due, depending on how quickly they are declared.
- Errors found during an FTA audit incur a penalty of 50% of the tax due plus interest.
- Disclose errors early through the next VAT return or a Voluntary Disclosure before being notified of an audit to benefit from early disclosure discounts on penalties.
Conclusion
Ensuring compliance with FTA audit requirements is crucial for avoiding costly penalties and maintaining smooth business operations. Use the provided checklist and preparation tips to ensure you are well-prepared for your audit. For expert assistance, contact us at Bestax. Our professional auditors are here to help you ensure compliance and prepare thoroughly for your FTA audit.
FAQs On The FTA Audit Process
What is included in the FTA audit checklist?
The FAF file must include detailed information for each invoice, such as invoice number, date, value, and VAT amount. Additionally, it should capture the description of goods and services and the corresponding VAT code.
How do I prepare for an FTA audit?
To avoid penalties, take these steps:
- Prepare necessary documents.
- Review previously filed VAT returns.
- Perform reconciliations.
How can I ensure compliance with FTA regulations?
Stay updated with tax laws, maintain accurate records, implement robust accounting systems, seek professional advice, and respond promptly to FTA communications to minimize the risk of fines and ensure business success.
How often are FTA audits conducted?
There is no fixed frequency for FTA audits. The FTA selects businesses for audits at its discretion.
What happens if I fail an FTA audit?
Failure to comply with an FTA audit or filing taxes on time can lead to:
- Failure-to-file penalties.
- Hefty fines, such as AED 10,000 for not maintaining financial records.
- Penalties for unpaid taxes.
- AED 20,000 penalty for not facilitating the tax auditor.
Are there penalties for non-compliance in an FTA audit?
Yes, various penalties apply for non-compliance, such as a AED 20,000 fine for not submitting documents in Arabic when requested by the FTA.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
