Tax audits in the UAE: how are they conducted and what is important to know?

Our clients often inquire whether tax audits are conducted in the UAE regarding the VAT/corporate tax returns filed and the taxes paid to the Federal Tax Authority (FTA).

The UAE tax system ensures strict oversight of VAT and corporate tax compliance to verify the correct fulfillment of tax obligations by taxpayers and ensure the accuracy of tax calculation and payment.

The Federal Tax Authority (FTA) in the UAE may initiate tax audits at its discretion at any time or based on violations detected in tax reports or taxpayer activities, such as:

The taxpayer evades tax obligations,
Discrepancies between declared VAT and actual turnover are identified,
Errors in tax return submissions or systematic delays in filing reports occur.

FTA audits are regulated by:

Federal Decree-Law No. 28 of 2022 on Tax Procedures and its subsequent amendments,
The Executive Regulation (Cabinet Decision No. 74 of 2023).

Tax Audit Process and Taxpayer Actions

The FTA is required to notify the taxpayer of an audit at least 10 business days before the scheduled audit date (Article 16 of Federal Law No. 28 of 2022), except in cases specified by additional clarifications or regulatory acts that may allow deviations from this rule.
During the audit, the taxpayer must provide access to accounting records and any documentation the FTA deems necessary for the audit (Article 17 of Federal Law No. 28 of 2022). The taxpayer is also required to assist tax inspectors; failure to do so may result in penalties for obstructing the audit.
Upon completion of the audit, the FTA must notify the taxpayer of the results within 10 business days, in accordance with Article 19 of the Executive Regulation. If additional tax liabilities or errors are identified, this information will be included in the results.
The taxpayer has the right to access the documents, data, and information used as the basis for tax assessment. To obtain this, a request must be submitted to the FTA in the prescribed format within 20 business days from the date of notification of the audit results. The FTA provides access to the information within 10 business days of receiving the request, including paper or electronic copies of the requested materials, or originals if they belong to the taxpayer.

Key Penalties for VAT Violations

The FTA regularly updates procedures and regulatory documents governing tax audits and penalties to enhance the transparency and efficiency of the UAE tax system.

Currently, the following administrative penalties apply for violations under tax procedures, as established by Cabinet Decision No. 40 of 2017 and applicable to VAT:

Violation	Penalty Amount
Late filing of a tax return	AED 1,000 for the first violation and AED 2,000 for a repeated violation within 24 months.
Late VAT payment	2% of the outstanding amount is charged on the first day after the due date, followed by 4% per month, up to a maximum of 300% of the total outstanding amount.
Error in tax reporting	A fixed penalty of AED 1,000 for the first violation and AED 2,000 for subsequent violations. Errors corrected before the reporting deadline may be exempt from this penalty.
Violation of accounting record-keeping requirements	AED 10,000 for the first violation; AED 20,000 for repeated violations.
Failure to provide tax-related data, records, and documents in Arabic upon request	AED 20,000
Failure to submit a VAT registration application within the legally prescribed period	AED 10,000
Failure to submit a VAT deregistration application within the required timeframe	AED 1,000 for the initial delay, followed by a monthly penalty, up to a maximum of AED 10,000.
Failure to notify the FTA of changes to taxpayer personal details recorded in the tax system	AED 5,000 for the first violation; AED 10,000 for repeated violations.
Failure of a legal representative to notify the FTA of their appointment within the prescribed timeframe (penalty payable from the representative’s own funds)	AED 10,000
Voluntary disclosure of errors in a tax return, tax assessment, or refund application	1.5% of the difference if disclosed within one year from the filing date; 10% if disclosed in the second year; 20% if disclosed in the third year; 30% if disclosed in the fourth year; 40% if disclosed after four years.
Failure to properly account for tax due on imported goods	50% of the unpaid or undeclared tax.
Violation of tax audit requirements	AED 20,000
Failure to voluntarily disclose an error in a tax return, tax assessment, or refund application before receiving an audit notification from the FTA	50% of the error amount. 4% of the tax amount for each month or part of a month, calculated as follows: a. For unpaid tax, from the due date of payment for the respective tax period until the date of settlement. b. For tax that was not refunded due to an inability to process the refund, from the due date until the issuance of the tax demand.

In addition, the FTA imposes penalties specifically for non-compliance with VAT regulations, including the following:

Violation	Penalty Amount
Failure to display prices inclusive of VAT	AED 5,000
Failure to notify the FTA of the use of the VAT margin scheme (applicable to certain goods)	AED 5,000
Violation of storage or movement conditions for goods in a designated zone (these zones have strict compliance rules for goods not intended for sale within the UAE)	The greater of: AED 50,000, or 50% of the VAT due on the goods.
Failure to issue a tax invoice or an alternative document for a supply (tax invoices are mandatory for all VAT-applicable transactions to confirm tax payment)	AED 2,500 per identified violation
Failure to issue a tax credit note or an alternative document (tax credit notes confirm VAT refunds or adjustments and are essential for proper accounting)	AED 2,500 per identified violation

We strongly encourage strict compliance with document issuance requirements and adherence to all regulatory guidelines.

Main Penalties for Corporate Tax Violations

Currently, administrative fines for violations within the framework of tax procedures are provided under the Cabinet Decision No. 75 of 2023 on Administrative Penalties for Violations of Federal Decree-Law No. 47 of 2022 "On Corporate Taxation and Enterprise Taxation."

Violation	Penalty Amount
Failure to register for corporate tax purposes	AED 10,000
Failure to submit the Tax Declaration within the deadlines set by the Corporate Tax Law	- AED 500 for each month or part of a month during the first year. - AED 1,000 for each month or part of a month starting from the 13th month in case of delay exceeding one year. This penalty is imposed starting from the day following the expiration of the deadline for filing the declaration and is renewed on the same day of each subsequent month of delay.
Non-payment of tax by the taxpayer	Monthly penalty of 14% annual interest on the unpaid tax amount for each month or part of a month, calculated from the day following the established payment deadline. For this penalty, the payment deadline is determined as follows: A. In the case of voluntary declaration - 20 working days from the date of filing the declaration. B. In the case of tax assessment - 20 working days from the date of receipt of the assessment.
Incorrect tax declaration	AED 500 if the individual does not correct the tax declaration before the deadline established by the Corporate Tax Law.
Voluntary declaration of errors in the Tax Declaration, Tax Calculation, or Tax Refund Request	Monthly penalty of 1% of the tax difference for each month or part of a month, imposed from the day following the submission of the Tax Declaration, the Tax Refund Request, or notification of the corresponding Tax Assessment, until the date of submission of the voluntary declaration.
Violation of accounting rules	AED 10,000 for each violation; AED 20,000 for a repeated violation within 24 months.
Failure to submit requested data and documents	AED 5,000
Failure to submit the application for registration cancellation within the deadline	AED 1,000 for late submission, followed by AED 1,000 for each subsequent month of delay, up to a maximum of AED 10,000.
Violation of tax audit conditions	AED 20,000
Failure to inform the Authority about changes in personal data related to tax accounting	The following penalties apply: AED 1,000 for each violation. AED 5,000 for repeated violations within 24 months from the date of the last violation.
Failure of a legal representative to notify their appointment within the established deadlines	AED 1,000; penalties will be paid from the legal representative's personal funds.
Failure to voluntarily declare errors in the Tax Declaration, Tax Calculation, or Tax Refund Request before receiving a notification of an audit from the Authority	The following penalties apply: A fixed penalty of 15% of the tax difference. Monthly penalty of 1% of the tax difference for each month or part of a month under the following conditions: If the taxpayer submits a voluntary declaration after receiving a notification of an audit, the penalty is applied for the period from the next day after the established deadline for submitting the Tax Declaration or from the day after the submission of the Tax Declaration or Tax Refund Request until the date of submission of the voluntary declaration. If the taxpayer does not submit a voluntary declaration, the penalty is applied from the day after the due date for submission of the Tax Declaration, Tax Refund Request, or Tax Assessment Notification until the date of the tax assessment decision.

All penalties are subject to revision and may be modified.

On 9 April in Dubai, we will hold an offline seminar on corporate tax, IFRS reporting, tax burden and risk management for our Russian-speaking audience. We will discuss practical issues of preparing corporate tax returns and IFRS reporting, tax burden calculation and planning, as well as analyse related issues. Join us to be prepared for any risks, including those related to tax audits!