What is Audit? The term audit refers to the examination of records, returns, and other such documents of a registered entity to verify that the turnover declared, refunds claimed, taxes paid, and input tax recovered are correct or not.
What is FTA Audit File?
With the same objective, the Federal Tax Authority (FTA) introduced the audit process. As a part of this audit, FTA may request the companies to submit their business information that shall be verified against the details declared in the VAT returns or any other declarations made to the FTA.
As FTA will and can audit businesses when they deem necessary to ensure they do their part in complying with the tax system laws, they created a compressed file that captures the information they need. Hence, the Federal Tax Authority is full of information it needs for them to assess your business and your compliance.
Once the tax audit is initiated, the business is required to submit all the information in a prescribed way known as an Audit File. The Audit File format has to have all the required information, needs to be provided by the businesses.
What does Tax Accounting Software do?
Manually recording the transactions of a company is a strenuous and time-consuming task that can be reduced with the help of accounting software. It is in the interest of FTA that the tax accounting software in all the companies should be able to generate the audit file in FAF format so that the business finds it more comfortable to create and respond quickly to FTA’s requests.
VAT returns is a summary level return that includes only the consolidated details about the sales, input and output VAT, and purchase, etc.,
Unlike VAT, the audit file designed FAF format needs to be at an invoice level.
The FTA Audit File’s format must be in ‘comma separated value’ (.csv) and must include the following details.
Details needed for FAF
Company Information
The FTA Audit File should include the following company information, as applicable.
1. Taxable Person’s Name (English)
2. Taxable Person’s Name (Arabic)
3. Tax Agency Name
4. TRN Tax (Tax Registration Number)
5. TAN (Tax Agency Number)
6. Tax Agent’s Name
7. TAAN (Tax Agent Approval Number)
Supplier and Customer Details
The customer and supplier’s locations, i.e., the country or the Emirate (in case the country is the UAE) along with the TRN, should be provided if applicable. You may also need to assign the tax codes such as ZR for Zero-rated supplies to identify the nature of the supply.
Transaction Details
You also need to include the details at each invoice level, in the FAF file. The details like VAT number, invoice number, permit number, invoice date, invoice value, transaction ID, and debit and credit amounts have to be included in the transaction details of FAF file. And in case of a payment transaction, the payment date must be captured.
What does Tax Accounting Software do?
- Manually recording the transactions of a business is a time-consuming process that can be reduced and eradicated by the help of accounting software.
- Cost reduction.
- Reduction of administrative costs.
- Ease of carrying out the audit with expected outcomes in the quality as carried out by the FTA.
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What can you do to prepare for the Audit?
To always stay organised when your company has to produce a FAF file, a tax consultant can help you better do the job. The list given below mentions the kind of reviews to be done to be prepared for the Tax Audit.
Review of the System
Before the tax audit, a review of the system ensures consistency with recorded transactions.
Review of Calculations Tax
It is essential for companies to ensure they are complying with the laws by checking that the calculations of both input and output taxes are correct. The tax rate is at 5% only, as a basic rule. Any goods and services falling under zero-rated and exempt tax should be treated as it is with documents for support.
Review of Payment of Tax Due
The exact amount of tax due should be paid on or before the due date. A tax consultant can help you to ensure you are not drawing any negative attention from FTA by missing the timeframe of tax payment to the government.
Review of VAT Returns
A VAT consultant reviews the VAT returns need to be filed by companies to ensure that returns will be prepared in the right manner with proper values recorded in the right cells and the required information.
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