Tax & compliance

What happens in an FTA audit

Notice, a document request, questions, and an assessment if something is wrong. What determines the outcome is whether the positions you took were documented at the time.

Notice givenDocumentation decides itAssessment appealable

The Federal Tax Authority may audit a taxable person's affairs, and generally gives notice before doing so. The process typically begins with a request for records — returns, accounts, invoices, contracts, bank statements — followed by questions about specific transactions or positions, and concludes either with no adjustment or with an assessment of additional tax and penalties. Assessments can be challenged: there is a reconsideration process with the FTA, and beyond it the Tax Disputes Resolution Committee and the courts.

The single factor that most determines how an audit goes is whether positions were documented when they were taken. A zero-rated export with the customs declaration attached is settled in a sentence. The same export with no documentation is a standard-rated supply with penalties, even though the goods genuinely left the country, because the evidential requirement is part of the relief. The same applies to related party pricing, to qualifying free zone income, and to input VAT recovery. Auditors are not unreasonable, but they work from documents, and 'we know it was right' is not a document.

Thresholds and deadlines

Notice: Generally given in advance
Scope: Returns, accounts, invoices, contracts, bank statements, working papers
Outcome: No adjustment, or an assessment of tax and penalties
Challenge: Reconsideration, then the Tax Disputes Resolution Committee, then courts
Decisive factor: Contemporaneous documentation of positions taken
Voluntary disclosure: Better done before an audit begins than during

The compliance calendar

Contemporaneous documentation60%The single factor that most determines the outcome

Responding within deadlines20%Late or partial responses widen the enquiry

Answering only what was asked12%Volunteering material extends the scope

Preserving appeal rights8%Reconsideration and dispute resolution both have deadlines

Proportions indicative — they shift with visa count, premises and activity.

Auditors work from documents. 'We know it was right' is not a document.

Respond within the deadlinesLate or partial responses widen the audit and undermine the position on penalties.
Produce documents rather than explanationsAn explanation without a document is treated as an assertion.
Review your own position before respondingWhere you find an error, take advice on whether voluntary disclosure is still open.
Answer the question askedVolunteering unrelated material extends the scope of the enquiry.
Preserve appeal rightsReconsideration and dispute resolution have deadlines, and missing them forecloses the challenge.

The mistake people make. Reconstructing evidence after the request arrives. Documents created after the event are visibly created after the event, and a genuine position that was never documented is harder to sustain than a marginal one that was.

Voluntary disclosure Records and retention Penalties Statutory audit — a different thing

Questions

Generally yes, with a request for records. The scope is set out and there are deadlines for responding.

Yes — through reconsideration by the FTA, then the Tax Disputes Resolution Committee, and then the courts. Each stage has deadlines.

Risk-based selection, inconsistencies between returns, refund claims, sector focus, and third-party information. It is not always a sign of suspicion.

Take advice. Voluntary disclosure is generally more valuable before an audit begins, but the position during one depends on the circumstances.

One question

What happens in an FTA audit

What the law actually requires.

Thresholds and deadlines

The compliance calendar

The filing, step by step.

Related

Questions

How are the books actually kept?