Taxation plays a huge role in sustaining and developing the economy of a country. This is why the government of a company should take every care of how the taxes are implemented and assessed, what will be the penalties, and about the tax refunds and various other provisions.
Keeping this in mind, the cabinet of the United Arab Emirates issued Decision No. 36 on the Executive Regulation of Federal Law No. 7 of 2017. Decision Number 36 on the Executive Regulation of Federal Law No. 7 of 2017 was issued on 24 September 2017, and the primary objective of this decision is to deal with how tax is understood by the people and how will the relevant authority assess it. It was also published in the official gazette of the country and became effective on the date of issuance.
This blog will deal with all about tax audits and the various aspects of the tax audit that a person might have to face in the United Arab Emirates, according to the Decision on the Executive Regulation of the Federal Law No. 7 of 2017.
What is a Tax Audit?
In accordance with the Federal Law No. 7 of 2017, a tax audit is defined as "A procedure undertaken by the Authority to inspect the commercial records or any information or data related to a Person conducting Business.” It is formal scrutiny taken up by the Federal Tax Authority in which the authority inspects all the books of a company or the administration and management of the company. An audit may also comprise of the inspection of the Person conducting the business.
In the course of a Tax Audit, the authority may inspect the following:
- The Premises where the Tax Audit is being conducted
- All the documents which are relevant and are present at the premises
- All the assets that are relevant and present at the premises
- The accounting system being used by the entity which is subjected to a Tax Audit
Notice of the Audit
When the authority orders a tax audit, it is also required to provide an announcement which will state the reason for which the audit is being conducted and will also state the potential consequences in case the Tax Auditor is obstructed in performing its duties. This notices should be presented in writing before the initiation of the Tax Audit to the following people:
- The notice should be given to the tenant where the audit is being conducted.
- The Person in charge of the Premises in case the tenant is not present on the Premises.
- If both the cases pose a problem, the notice shall be posted on the premises where it will be easily visible and read by people.
The Tax Auditor is also obligated to first take the permission of the public prosecutor before conducting the tax audit and should present the permit which is issued by the Federal Tax
Authority to conduct the audit, and the authority also has the power to ask for the proof of identity of being a Tax Auditor every time he or she is requested to do so. The Tax Auditor may also bring along any official of the Authority who can make the work easy for the Auditor.
Result of the Tax Audit
According to the Decision of the Federal Tax Authority, any entity which is subject to a Tax Audit should be notified within ten (10) business days, which will be calculated from the conclusion of the tax audit.
It is the right of the entity being audited to be notified of the results of the audit, and he may also request to see or obtain the documents and the data upon which the Federal Tax Authority has assessed the due tax. Any such demand should be made by the entity which was audited within twenty (20) business days. Upon the request of the data by the entity, the Authority needs to provide the information within the next ten (10) days in the following manner:
- A copy of the requested data in paper or electronic form
- In case the data or the information belongs to a person, he has the right to ask for the original document from the Tax Authority
However, the Federal Tax Authority can deny the request of an entity which was audited under the following circumstances:
- In case the data or the document will prove instrumental in revealing any internal correspondence or any decisions which are made by the authority.
- Any data which is confidential and might reveal information related to other Person or persons.
The results of an audit are recorded in an audit report. This report is the key to find out the current situations in a company and what will be the future of the company.
The Federal Law No. 7 of 2017 was issued to specify the way tax will be handled in a country and to provide comprehensive information to the people of the UAE. As taxes can affect both the entity as well as the country, it is indispensable to keep them regulated.
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