What Triggers an FTA Audit? UAE Corporate Tax Essentials
Nobody likes the word “audit”, but if you’re doing business in the UAE, it’s something you need to be ready for. The Federal Tax Authority (FTA) has the right to review your tax records at any time, and that includes businesses of all sizes.
If your records are clean and your filings are in order, an audit doesn’t have to be stressful. Let’s break down what an FTA audit actually involves, what triggers it, and how you can keep your business audit-ready without the panic.
What Is an FTA Audit?
An FTA audit is basically the government double-checking your tax work. The Federal Tax Authority reviews your records to confirm you’ve followed the Corporate Tax rules. That includes the income you earned, the expenses you claimed, and whether you’ve reported things honestly and on time.
And it doesn’t matter if your business is small or massive, or if you’re set up in a Free Zone or the mainland; any registered business can be picked. Some audits are random. Others are triggered by things that don’t quite add up. If you're well prepared, the process is much smoother and less stressful.
Let’s take a closer look at what the FTA watches out for and how you can stay a few steps ahead.
What Usually Triggers an FTA Audit?
The FTA doesn’t say exactly what it looks for, but certain patterns and mistakes raise red flags. Here are some of the biggest ones:
1. Reporting Big Losses Year After Year
If your business keeps showing big losses, especially when others in your industry are doing okay, it might look fishy. The FTA could suspect you’re overstating costs or underreporting income.
2. Doing Business With Related Companies
If you sell or buy from other businesses you own or are connected to (like a family company), the FTA wants to make sure those transactions are priced fairly. Without proper backup, that can be a red flag.
3. Inconsistent Numbers
If your VAT filings show one income figure and your Corporate Tax filings show another, it sets off alarms. The FTA checks for mismatches.
4. Claiming Expenses You Shouldn’t
Trying to deduct things like traffic fines or personal trips? That’s not allowed, and it can get your file flagged.
5. Too Many Corrections
Changing past tax returns once in a while is normal. But if you keep going back and editing old numbers, it may look like you’re trying to clean things up after getting something wrong.
6. Being Late on Your Tax Tasks
Not registering on time, missing a filing deadline, or forgetting to pay tax—each of these tells the FTA your business might not have its act together. That alone can increase the risk of an audit.
7. Claiming Too Many Exemptions
It’s okay to use legitimate reliefs like the Small Business Relief or the 0% Free Zone rate—but overdoing it or not backing it up with proof can draw attention fast.
8. Big Revenue Swings
Did your income suddenly shoot up or drop without any clear reason? The FTA might ask questions to make sure you’ve filed accurately and not left anything out.
9. Very Low Tax Paid
If your final tax rate is way lower than similar businesses in your sector, it might seem suspicious. The FTA might check whether your deductions or exemptions were valid.
10. Anonymous Reports
Sometimes audits are triggered by tips or complaints. If someone sends a concern about your business, the FTA may look into it.
How to Stay Audit-Ready All Year
Here’s the truth: staying ready for an audit doesn’t need to be stressful. If you stay organized and keep things transparent, there’s nothing to worry about. Here’s how to do that:
1. Keep Every Important Record
We’re talking invoices, contracts, bank slips, ledgers, and tax reports. Anything that proves what you earned and spent. These should be clearly labeled and safely stored for seven years.
2. Match Your Numbers
Your VAT and Corporate Tax filings should align with your financial statements. If there are differences, explain them clearly.
3. Have Transfer Pricing Docs Ready
If you deal with group companies, create a Master File, Local File, and Transfer Pricing Disclosure Form—even if the FTA hasn’t asked yet. Better safe than scrambling later.
4. Keep Evidence for Every Exemption
Applying for Small Business Relief? Claiming Free Zone status? Be ready to prove you meet the rules, with revenue summaries, tax residency papers, and more.
5. Keep Up With FTA Updates
Tax rules change. The FTA posts updates and clarifications often. Check their website regularly or follow trusted advisors who do.
6. Do a Mock Audit
Have your accountant review your filings like an FTA officer would. This small check can help you fix issues before they become real problems.
7. Use the Right Tools
Platforms like Tax Star can help you track filings, store docs, and set reminders so nothing slips through the cracks. It’s like having a personal assistant just for tax.
8. Teach Your Finance Team the Rules
Make sure the people handling your accounting know the basics of Corporate Tax. Misunderstandings can lead to costly mistakes.
9. Document How You Treat Certain Income or Expenses
If you handle something in a specific way, like treating a certain cost as deductible, keep a note explaining why. That way, if the FTA asks, you have your reasoning documented.
What Happens During an Audit?
If you’re selected for an audit, the FTA will send you a letter. It will explain:
- What they’re looking at
- Which documents you need to submit
- When the deadline is (usually a few days to two weeks)
If your files are in order, the audit may be done quickly. But if things are missing or unclear, they may extend the process, ask more questions, or impose penalties.
Expect requests like:
- Tax returns (CT and VAT) for past years
- Profit and loss statements
- Invoices and receipts
- Transfer pricing backup
- Ownership or board records if you’re part of a group
Why Getting Ahead Matters
You don’t want to scramble the day the FTA calls. Here’s why being ready early is smart:
- It’s less stressful: No last-minute digging through old records.
- It saves money: You’ll avoid penalties and corrections.
- It builds trust: If the FTA sees you’re organized, they’re less likely to dig deeper.
- It helps your business grow: Clean records attract investors and make expansion easier.
- It gives you control: When you know your tax status, you make smarter decisions.
FAQs:
Do small businesses get audited too?
Yes. Any business that’s registered for Corporate Tax is on the FTA’s radar.
How many years back can the FTA check?
Seven years. Keep all your records that long.
Will they tell me before the audit starts?
Yes, you’ll get a notice with a list of documents to send and a due date.
What if I made a mistake in my past return?
You can file a voluntary correction. It’s always better to fix it before they find it.
Do Free Zone companies get audited?
Yes. Especially if they claim the 0% rate. The FTA checks that you meet every rule.
What’s the easiest way to stay ready?
Be consistent. Stay organized. Use tools like Tax Star to track your documents and returns.
Can Tax Star really help if I’m audited?
Absolutely. It keeps everything stored and sorted, so when you’re asked for documents, they’re already there.
