A Corporate tax audit UAE review can become difficult when a business cannot quickly explain how its tax return was prepared or support the figures reported to the Federal Tax Authority (FTA). This is where Audit Services UAE can help businesses review financial records, organise tax documentation, and identify gaps before an FTA review becomes stressful. The FTA may look beyond the Corporate Tax return and examine accounting records, financial statements, transactions, contracts, and evidence supporting tax adjustments.
Businesses should therefore understand what the FTA is likely to ask for first and how each record connects to the reported taxable income. A well-organised audit file can make it easier to answer questions and provide supporting evidence when requested. This guide explains the main records, documents, transactions, and checks businesses should be prepared to address during a UAE Corporate Tax audit.
What Is Corporate Tax in the UAE?
Corporate Tax in the UAE is a federal tax applied to the taxable income of businesses and other entities that fall within its scope. It was introduced to create a clear tax framework for businesses operating across the country while supporting the UAE’s wider economic and regulatory goals. The tax applies based on the rules set under UAE Corporate Tax legislation, with specific provisions covering taxable income, exempt income, deductible expenses, tax losses, Free Zone businesses, and other situations.
Businesses must determine their taxable income, calculate the applicable tax, maintain supporting records, and submit their Corporate Tax return to the Federal Tax Authority (FTA) within the required deadline. The amount of tax payable depends on the company’s taxable income and the applicable Corporate Tax rules. Proper accounting records help businesses support the figures reported in their Corporate Tax return.
What Does the FTA Ask to See First?
The FTA will generally need records that allow it to connect the Corporate Tax return with the underlying financial information. During a Corporate Tax audit UAE review, the first documents may help the FTA understand how the reported figures were calculated and whether the company’s accounting records support them. These records can include financial statements, trial balances, general ledgers, tax computations, invoices, contracts, and bank records. The exact documents requested can vary based on the company’s activities, transactions, accounting structure, and tax position. Businesses with related-party transactions or Free Zone income may need additional evidence.
The FTA can also examine records supporting assets, liabilities, transactions, and other information relevant to the tax period. Keeping these documents organised makes it easier to respond when information is requested and helps the company explain differences between accounting figures and its Corporate Tax return. Businesses should not wait for an audit notice before checking whether their records tell the same financial story.
Financial Records the FTA Reviews
The FTA may review several financial records to trace figures reported in the Corporate Tax return. Key records can include:
- Financial statements: The FTA may compare taxable income with the company’s financial statements and accounting results.
- Trial balance: This connects accounting balances with the figures used to prepare the financial statements.
- General ledger: Ledger entries can explain revenue, expenses, journal adjustments, provisions, and unusual transactions.
- Bank statements: Bank records may be compared against actual receipts, payments, and accounting entries.
- Sales and purchase records: Invoices, credit notes, and transaction schedules can support recorded revenue and expenses.
- Fixed asset records: Asset registers can support depreciation, purchases, disposals, and other asset-related entries.
How Does the FTA Check Taxable Income and Adjustments?
The FTA may compare accounting profit with taxable income reported in the Corporate Tax return. The review can focus on why specific adjustments were made and whether the supporting evidence matches the tax treatment used.
Accounting Profit to Taxable Income
The FTA may review how the business moved from accounting profit to taxable income and whether the calculation follows applicable UAE Corporate Tax rules.
Deductible Business Expenses
The FTA may examine significant expenses and request invoices, contracts, payment records, and evidence showing their connection to the business.
Non-Deductible Expenses
Certain expenses may require tax adjustments, so the FTA may check whether the business has correctly identified and treated them in its tax computation.
Exempt Income
Where income has been treated as exempt, the FTA may ask for transaction details and supporting documents showing why the relevant treatment applies.
Tax Losses
The FTA may review how tax losses were calculated, carried forward, or used and whether the supporting records agree with previous tax filings.
Other Tax Adjustments
Other adjustments may be reviewed against accounting records, contracts, calculations, and documents supporting the specific tax treatment applied.
What Supporting Documents Does the FTA Request?
Supporting documents help the FTA verify whether accounting entries and tax positions are backed by actual business transactions. Businesses should keep key evidence available, including:
- Tax invoices and receipts: These support sales and business expenses recorded in the accounts.
- Contracts and agreements: These show the commercial terms of major transactions.
- Bank records: These support payments, receipts, loans, and other financial movements.
- Payment evidence: This connects recorded expenses with actual settlements.
- Transaction schedules: These can explain significant or unusual entries appearing in the accounts.
How Does the FTA Review Related-Party and Free Zone Transactions?
Related-party and Free Zone transactions can require closer review because their tax treatment depends on specific UAE Corporate Tax rules and supporting facts. Businesses should be prepared to explain:
- Related-party transactions: Details of transactions between connected or related entities.
- Transfer Pricing records: Supporting documentation where UAE Transfer Pricing requirements apply.
- Intercompany charges: Agreements, invoices, calculations, and payment records for shared services or other charges.
- Free Zone income: Records supporting the classification of income earned by a Free Zone entity.
- Qualifying activities: Documents supporting the relevant Free Zone tax treatment where applicable.
- Business records: Accounting and operational records supporting the company’s stated activities and tax position.
What Happens During an FTA Corporate Tax Audit?
A Corporate tax audit UAE process may involve a review of records, information, data, and accounting systems to assess whether the business has complied with applicable tax requirements. The process may involve:
- Receiving an audit notice: The FTA may notify the business about the audit and information required.
- Providing requested records: The company may need to submit financial, accounting, tax, and supporting documents.
- Responding to questions: The FTA may ask the business to explain transactions, calculations, adjustments, or differences.
- Reviewing findings: The FTA may communicate observations or findings requiring clarification or further evidence.
- Addressing the outcome: The business may need to respond to findings or take further action depending on the audit result.
Corporate Tax Audit Checklist for UAE Businesses
A practical audit file helps businesses locate important records quickly and respond to FTA requests clearly.
- Corporate Tax returns: Keep submitted returns, tax calculations, adjustments, and supporting working papers.
- Financial statements: Maintain financial statements and supporting schedules for the relevant Tax Periods.
- Trial balance and general ledger: Keep records that support financial statements and explain individual transactions.
- Bank statements and reconciliations: Maintain bank records and reconciliations showing how balances match the accounts.
- Invoices, contracts, receipts, and payment records: Keep documents supporting major sales, purchases, expenses, and payments.
- Related-party, Transfer Pricing, and Free Zone records: Maintain relevant agreements, calculations, and supporting documents where applicable.
Common Corporate Tax Audit Mistakes in the UAE
Businesses can face unnecessary difficulties when their accounting records and tax documentation do not clearly support their Corporate Tax position. Common problems include:
- Filing a return without keeping supporting evidence.
- Having differences between the Corporate Tax return and financial statements.
- Treating every accounting expense as automatically deductible.
- Keeping incomplete records for related-party transactions.
- Assuming Free Zone status automatically means all income is taxed at 0%.
- Preparing documents only after receiving an FTA audit request.
Conclusion
Preparing properly for a Corporate Tax audit UAE review starts with knowing where the numbers in the Corporate Tax return came from and having documents to support them. The FTA may trace taxable income through financial statements, trial balances, general ledgers, invoices, bank records, contracts, and other evidence. Businesses should also be ready to explain tax adjustments, significant expenses, related-party transactions, Free Zone income, and other specific tax positions.
Audit Services UAE can help businesses review their records, organise audit documentation, and identify areas that may need attention before an FTA review. Keeping accurate and accessible records throughout the Tax Period can make it easier to respond when the FTA requests information and explain the basis of the company’s tax position.
FAQs
What documents does the FTA ask for during a Corporate Tax audit?
The FTA may request Corporate Tax returns, financial statements, accounting records, invoices, contracts, bank records, and other documents supporting the reported tax position.
How long should UAE Corporate Tax records be kept?
Businesses generally need to retain relevant Corporate Tax records and documents for at least seven years after the end of the relevant Tax Period.
Can the FTA review accounting software?
Yes. The FTA can inspect electronically stored records, data, and accounting systems used by a taxable person during an audit, subject to applicable rules.
Does every UAE business face a Corporate Tax audit?
No. The FTA has authority to conduct audits to check tax compliance, but this does not mean every UAE business will be audited.
Does a Free Zone company need Corporate Tax audit records?
Yes. Where Corporate Tax applies, a Free Zone company should maintain records supporting its income, tax calculations, and any specific Free Zone tax treatment claimed.