Top Tips in Avoiding UAE Tax Audit and Unwanted FTA Attention
No business wants to attract any unwanted attention and scrutiny from the Federal Tax Authority (FTA) in UAE. A tax audit in Dubai, UAE can be both costly and stressful. Tax audits are also well-targeted as the local tax authority’s data matching capabilities have made it easier for them in picking up errors and discrepancies. To stay out of FTA’s radar and out of trouble, follow these tips:
#1: Be conscientious when taking cash.
Accurately or otherwise, FTA believes businesses that operate in a cash economy such as shopkeepers, restaurant owners, taxi drivers, and tradesmen among others, are more likely to fail in declaring all of their income.
This does not mean there is a need for you to change careers when you get payments in cash. However, it means you can expect surprise tax audits at any point in the year. Be extra careful with your paperwork and follow simple precautions, which we’ll also outline in this article.
#2: Avoid huge income fluctuations.
What is most likely to get red lights flashing with the FTA is either earning less than other businesses in the same situation as you or significantly less compared to the previous financial years. The FTA has benchmarks for the earnings of businesses in different industries.
#3: Check your arithmetic twice.
Among the common triggers for a tax audit in UAE is numbers not making any sense. This is very tricky for business owners. More often than not, they find themselves being flagged for different kinds of discrepancies like inconsistencies between total sales and expenditures on income tax returns.
Business owners should be very mindful that failing in paying employees correct wages can result in fines and penalties. This also quickly snowballs into tax audits.
#4: Be punctual.
Lodging an income tax return and all the necessary supporting documents on time every single tax filing season results in a great compliance history with the FTA. This indicates to the FAT that you are very serious in meeting your tax obligations in UAE and you are less likely to engage in a creative form of accounting.
#5: Keep records of all business-related expenses.
Taxpayers or tax-registered entities in UAE are allowed in claiming expenses, which are related to earning income. Be aware that the FTA cracks down on all those that push the envelope. For instance, if you claim costs that are related to outgoings like internet and mobile phone, you should only claim a part of the costs that is related to business or work usage.
It is very important that you make sure you claim all your eligible tax deductions to avoid paying more than what’s necessary. However, whatever you do, you should not overstep the line. Make sure that you check any special deductions which are applicable to you, but don’t also go claiming things which may be unreasonable as this can attract a surprise tax audit in UAE.
Bonus tip: Declare all your income.
For professionals registered as business entities in UAE, it is important that all income is declared in the tax return. The responsibility, ultimately, for including your income will rest with you. Make sure that you report every single income stream, most especially for social media influencers. This is because the FTA makes use of a broad range of information sources in cross checking.
Common mistakes are the following: not including the capital gains that are received when selling property or shares and forgetting income that is from an overseas source. The FTA is interested particularly in work-related expenses for tax deductions. Should you claim deductions in your tax return and it is unusually high in comparison to those who are in the same industry as you, as mentioned earlier, the FTA will also want to scrutinize to know more.
How can I prepare my business for tax audits in UAE?
There are times when tax audits by the FTA are inevitable. Always be ready for a surprise tax audit in Dubai or anywhere in the UAE with these tips:
- Avoid over purchasing and underclaiming – make sure that every single thing you declare is truthful. What you do not want is the FTA being set off with the red flags your business is triggering. Whenever purchases are not aligning with the stated income, this raises a lot of red flags. Avoid the hassle by declaring everything and truthfully.
- Be sure to retain the correct documentation – when going through a tax audit in Dubai, you’ll be asked by a tax officer to show all pertinent details of the business expenses, rebates, and claims. Make sure that you have all of the documents in hand. If possible, label and file the documents so you can access them easily.
To know more about FTA tax audits, call VAT Registration UAE today!