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Mitigating risk with timely amendments to the FTA Tax Audit Framework

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WHAT IS ACCOUNTING SOFTWARE?

Accounting software is a vital resource for modern businesses. It is essentially a “set of procedures including internal controls, books of accounts, and charts/charts of accounts, all of which are used to manage, record, and report transactions financial translation.”

Functional modules commonly integrated into accounting software include Accounts Receivable, Accounts Payable, Purchase Orders, Purchase Orders, Inventory, Invoices, and General Ledger.

WHAT IS TAX ACCOUNTING SOFTWARE? 

Tax accounting software is developed to capture and generate accurate accounting information for tax reporting. An automated system for keeping tax records reduces errors in tax reporting. It thus reduces compliance costs and penalties for the business. In addition, the software will be able to generate reports to monitor the tax system by looking for input from the company’s peripheral systems.

Tax accounting software provides a platform to enhance communication and cooperation between the private and public sectors.

The term “tax accounting software” is widely applied and interpreted throughout the document to cover functionality typically associated with accounting systems, tax compliance technology (e.g., accounts receivable and accounts payable), and other connected financial systems (e.g., the terminal point of sale). Therefore, tax accounting software allows us to automate all tax responsibilities, such as tracking records, paying money, declaring declarations, etc., helping businesses save time, money, and time.

TAX ACCOUNTING SOFTWARE IN THE CONTEXT OF FTA SOFTWARE PROVIDERS MUST STRICTLY FOLLOW THIS GUIDELINE WHEN DEVELOPING TAX ACCOUNTING SOFTWARE

The three main must-have features in accounting software require the system to be able to automatically generate

  • a standard file called an FTA audit file.
  • a VAT declaration file.
  • tax invoices and notes credit/debit. 

Vendors will need to demonstrate that their tax accounting software has this functionality and complies with the requirements.

The UAE government introduced VAT (Value Added Tax) in 2018. Therefore, companies must always be prepared, knowing that the AFC can conduct an ad hoc audit whenever they want. In addition, under federal tax law, the FTA can force any person or entity to undergo a tax audit to ensure compliance with relevant laws.

HOW DO YOU DEFINE AN FTA TAX AUDIT?

The FTA conducts audits in the UAE and covers the following:

  • Review detailed financial information, accounting books, and VAT declarations of the entity.
  • Ensure taxpayers have carefully calculated and declared the amount of tax payable. 
  • Ensure that the entity complies with applicable rules and regulations.

ALE does not need a specific reason to audit a company’s financial records. They can perform an audit if they believe a particular entity does not meet certain requirements or perform a random check. A company must prepare for such audits as the FTA only allows five days to respond to inquiries.

In addition, companies must also determine the correct tax position for standard rate transactions, zero rate transactions, and out-of-scope transactions. Other key responsibilities include the following-

  • Ensure the system records detailed financial data up to VAT declaration.
  • Ensure VAT returns are correctly compared with current records.
  • Maintain personalized records with relevant documents to support them.  

FTA TAX INSPECTION PROCEDURES

  • The FTA may apply risk-based selection criteria to determine which entities/individuals need to be audited.
  • AFC may conduct tax audits at its headquarters, on its premises, or any other place where the company conducts commercial activities.
  • Notice of Field Audit – Suppose AFC decides to conduct an on-site audit; they must notify the company of the audit five days in advance.
  • Temporary closure for 72 hours – Tax auditors may require taxpayers to close their business for up to 72 hours with notice if-
  1. Tax authorities have convincing evidence that individuals (whose accounts are being audited) evade taxes. 
  2. The tax auditor considers that failure to temporarily close the establishment will impede the accuracy and efficiency of tax audits.
  • Written consent – ​​In case the authorities order to temporarily close the business, Tax inspectors may order closures with written authorization from the DG (general manager).
  • The case must be personally visited and the place of residence must be allowed by the Procurator.
  • Assume the business is closed for more than 72 hours (about 3 days). In this case, the tax inspector requested the prosecutor’s authorization.
  • The auditor can sue the entity if it receives a request from the CEO.
  • Once a tax audit is initiated, the company must provide the required information in an ALE-approved format. A VAT return is a summary statement by cell, depending on the type of transaction, such as aggregate data related to sales, purchases, input/output VAT, etc.

HOWEVER, AN ALE-AUTHORIZED AUDIT REQUIRES ENTITIES TO GENERATE DATA AT THE INVOICE LEVEL. RIGHTS OF THE AUDITEE

  • Ask the inspector to present their practice card.
  • Provide a copy of the tax audit notice.
  • Attend tax audits that take place outside AFC headquarters.
  • Get copies of original papers or documents that the FTA has seized.

COMPLETE FTA TAX INSPECTION

  • After the inspection, the AFC will notify the taxpayer of the test results within ten days (approximately a week and a half). 
  • If the FTA makes an assessment, taxpayers can refer to or get the documents that the FTA used for the assessment.

WHAT TRIGGERS A TAX AUDIT?

During the tax audit, the FTA will examine tax returns and other documents and information that form part of the tax return. FTA is not a necessary 


Specific reason to control a taxable entity. For example, the AFC in the United Arab Emirates may conduct a tax audit at any time or for any reason. However, Article 17 of the Tax Procedures Act requires the FTA to notify the company at least five days before the audit date.

FTA TAX INSPECTION TIME

Checks are not required for all controlled companies. Regarding the frequency of testing, there is no fixed schedule. AFC’s job is to select companies to audit from time to time. The FTA has the sole discretion to decide whether to fully audit companies.

Considerations for choosing a company for a tax audit include the following.

  • Size and complexity of the business
  • Company compliance history
  • Late submissions are on the rise
  • Errors in declarations, etc.  

VOLUNTARY DISCLOSURE

  • The FTA encourages taxpayers to file voluntary returns if they break the rules or make careless mistakes.
  • Entities should proactively approach errors or risks to avoid costly penalties. Taxable entities must voluntarily declare and notify the FTA of errors and omissions in tax reports, tax notices, and tax refund requests.

HOW CAN BUSINESS FIND ERRORS/ERRORS IN PREVIOUSLY FILED TAX RETURNS? 

Businesses must perform a VAT audit or check the status of previously filed tax returns. Entrust the responsibility of conducting a VAT audit to a reputable tax authority, as they will help your business correct serious errors/omissions in your VAT return. However, you must ensure that the tax authority in question has been approved by the FTA.

Following the above-simplified approach will reduce the possibility of errors and penalties when the FTA conducts the tax assessment. Furthermore, these processes will ensure that your customers do not face any VAT-related problems. As a result, your reputation will remain intact, and your business will thrive. 

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