How Compliance Consulting Protects Your Business
24th May 2025
As the UAE transitions into a more regulated tax environment, businesses must be prepared to meet evolving compliance standards. One such area of focus is the corporate tax audit, a thorough review of a company's financial records and tax submissions by the Federal Tax Authority (FTA).
But what exactly is a corporate tax audit, and why is it becoming a critical aspect of business operations in Dubai?
A corporate tax audit is an official examination conducted by the FTA to verify the accuracy of a business’s tax returns, financial statements, and supporting documents. This process ensures that the entity is complying with the UAE’s new corporate tax laws and is paying the correct amount of tax.
With the introduction of corporate tax applicable for financial years beginning on or after June 1, 2023, businesses in Dubai must now operate under increased regulatory scrutiny. A tax audit can not only impact a company’s finances but also its credibility. Thus, being audit-ready is essential for sustainability and compliance.
The UAE’s corporate tax regime represents a major change in its taxation policy, aiming to align with global tax standards and improve transparency. It applies to all businesses operating within the country, except for those engaged in the extraction of natural resources and other explicitly exempt activities.
Entities subject to corporate tax include:
• Companies registered in the UAE, including those in free zones, are subject to this unless they are exempt.
• Foreign businesses with a permanent establishment in the UAE.
• Individuals conducting business activities under a commercial licence.
The standard corporate tax rate is 9% on taxable income exceeding AED 375,000. Income below this threshold is taxed at 0%, primarily to support small businesses and startups.
Some exemptions include:
• Qualifying Free Zone entities
• Government entities
• Investment funds (under specific conditions)
Understanding the factors that trigger a tax audit is crucial for proactive compliance.
• Sudden changes in revenue or expenses
• Frequent losses or low profitability
• Large or inconsistent tax refund claims
• Complex related party transactions
• Non-compliance with Transfer Pricing documentation
The FTA typically uses a risk-based assessment to identify audit targets. However, random audits may also be conducted to ensure fairness and discourage non-compliance across all industries.
The best defence against audit complications is proactive preparation.
Maintaining Accurate Financial Records: Keeping accurate and organised records is the cornerstone of audit readiness. All business transactions, invoices, and receipts should be documented and stored securely.
Implement Proper Accounting Systems: Investing in reliable accounting software helps automate recordkeeping and ensures consistent financial reporting, making it easier to retrieve data during an audit.
Importance of Hiring a Tax Advisor: Engaging with professional Tax Services in Dubai helps you stay updated with regulations and ensures your business is always audit-ready. A qualified advisor can also assist in submitting required documentation and communicating with the FTA.
Being organised with your documentation can significantly ease the audit process. Essential documents include:
• Financial Statements
• General Ledger and Journals
• Corporate Tax Returns and Schedules
• Contracts and Agreements
• Transfer Pricing Files and local files, if applicable
An internal audit allows businesses to identify potential compliance issues before an official audit. It acts as a dry run, revealing gaps in records, inconsistencies, or misreporting.
Engaging an external audit firm provides a third-party validation of your financial data. This is especially helpful for maintaining transparency and demonstrating good faith during a corporate tax audit.
During a corporate tax audit, the FTA scrutinises several critical areas to ensure compliance with the UAE's tax laws.
The FTA examines whether businesses recognise revenue under International Financial Reporting Standards (IFRS). This includes verifying that income is reported in the correct accounting period and that all revenue streams are accurately captured. Inconsistencies between reported income and bank deposits can raise red flags.
Expenses claimed must be wholly and exclusively incurred for business purposes. The FTA assesses whether expenses are justifiable and supported by appropriate documentation. Personal expenses or those lacking clear business justification are typically non-deductible. For instance, capital expenditures are not immediately deductible, but depreciation on such assets may be allowed under certain conditions.
Transactions with related parties are scrutinised to ensure they adhere to the arm's length principle, meaning the terms should be comparable to those between independent entities. The FTA evaluates whether these transactions are priced fairly and documented appropriately.
Businesses engaged in cross-border or intra-group transactions must maintain comprehensive transfer pricing documentation. This includes preparing a Transfer Pricing Disclosure Form, Master File, and Local File, especially for entities meeting certain revenue thresholds. Proper documentation demonstrates compliance with the arm's length principle and mitigates audit risks.
Being organised with your documentation can significantly ease the audit process. Essential documents include:
• Financial Statements: Audited or finalised statements for the relevant tax years.
• General Ledger and Journals: Detailed records of all financial transactions.
• Corporate Tax Returns and Schedules: Complete and accurate filings with supporting calculations.
• Contracts and Agreements: All contracts related to income generation, expenses, or business relationships.
• Transfer Pricing Documentation: Master and Local Files, especially for businesses meeting specific revenue criteria.
• Invoices and Receipts: Proof of transactions to validate figures reported in tax returns.
• Bank Statements and Reconciliations: To ensure that recorded transactions match bank records.
• Payroll Records: Employee contracts, salary slips, and bonus approvals.
Conducting regular internal audits allows businesses to identify potential compliance issues before an official audit. This proactive approach helps in rectifying discrepancies and strengthening internal controls.
Engaging an external audit firm provides an independent assessment of your financial data. Their expertise can uncover issues that internal teams might overlook and add credibility to your financial statements during a corporate tax audit.
Modern accounting systems like Zoho Books, Xero, or QuickBooks enable real-time financial tracking and easier data retrieval during audits. These tools ensure consistency and accuracy in financial reporting.
Implementing digital storage solutions ensures that essential records are safe, accessible, and backed up, thereby minimising delays during audits.
A robust cloud backup solution ensures continuity, even in the event of hardware failures or cyber threats. It allows for secure and remote access to financial data when needed.
Upon receiving a notification, businesses typically have 10 to 20 business days to respond, depending on the FTA’s instructions. Prompt action is crucial to demonstrate compliance and cooperation.
The FTA may request a wide range of documents and data, including:
• Detailed financial records
• Bank statements
• Tax returns
• Payroll data
• Specific invoices or contracts
All communication with the FTA should ideally be handled by your tax advisor or accounting team. These professionals are better equipped to interpret queries, provide accurate responses, and mitigate risks.
Preparing for a corporate tax audit in Dubai is essential in today’s regulatory landscape. Gerald Duthie Accounting LLC offers expert support with accounting, tax, and compliance services to ensure your business is audit-ready. From accurate recordkeeping to transfer pricing documentation, our team helps you stay compliant and confident. Partner with us for reliable guidance and seamless audit preparation tailored to the UAE’s evolving corporate tax requirements.
Email: info@geraldduthie.ae
Call: +971 (50) 695-1806
