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In the current UAE tax landscape, Federal Tax Authority (FTA) audits have become a standardized procedure to ensure compliance across VAT and Corporate Tax. Preparing for an audit is no longer about a reactive response to a notice; it requires an integrated approach to financial record-keeping and digital transparency.
Understanding the FTA Audit Process
The FTA typically selects businesses for audit based on risk-based criteria, such as significant variations in profit margins, frequent voluntary disclosures, or mismatches between VAT and Corporate Tax filings. Once a notice is issued through the EmaraTax portal, businesses often have only 5 business days to provide an initial response and submit requested documentation.
Core Documentation for Audit Readiness
The foundation of a successful audit is the availability of structured, verifiable records. The FTA expects data to be produced in a specific format, often requiring the FTA Audit File (FAF).
- VAT Records: You must provide full tax invoices for all sales and purchases, including valid TRNs for suppliers. For zero-rated or exempt supplies, supporting evidence such as customs exit certificates is mandatory.
- Corporate Tax Documentation: This includes audited financial statements, a clear trial balance, and a general ledger. If your business claims Small Business Relief, you must provide revenue evidence proving you are below the AED 3 million threshold.
- Bank and Cash Records: Auditors will perform a full reconciliation between your bank statements and your accounting entries. Any unexplained deposits or withdrawals are viewed as high-risk areas.
- Legal & Contractual Files: Valid contracts for high-value transactions, especially those involving “Connected Persons” or related parties, must be readily accessible to justify “Arm’s Length” pricing.
The Impact of the 2026 Standards
Recent updates to UAE tax procedures have placed a higher emphasis on digital governance. By mid-2026, the shift toward mandatory Electronic Invoicing will further automate the FTA’s ability to cross-check data in real-time.
- Retention Requirements: All Corporate Tax-related records must now be retained for a minimum of 7 years, while VAT records generally require 5 years.
- Reconciliation Focus: The FTA’s AI-driven systems now automatically flag discrepancies between the revenue reported in your quarterly VAT returns and your annual Corporate Tax filings. A pre-audit “health check” to align these figures is essential.
Managing the Audit Communication
When an audit begins, appointing a single point of contact, ideally an FTA-registered Tax Agent is a business best practice. This ensures that all information provided to the auditor is consistent and technically accurate.
A proactive “Self-Audit” before receiving a notice is the most effective way to mitigate risk. This process involves identifying missing invoices, verifying that tax codes are correctly applied in your ERP system, and ensuring that all non-deductible expenses (such as 50% of entertainment costs) have been correctly excluded from tax calculations.
