Nobody wants to be in the Federal Tax Authority’s radar. That is why there is much mystique about avoiding regulatory audits in UAE. While there are several theories abound, there’s a couple of basic things that you’re able to do which can reduce the likelihood of your business being picked for a surprise audit. They are as follows:
- Double-check your math
Make sure that you add, multiply, and subtract accurately. Always check the numbers through every step and do the simple math checks as you finish. It’s one of the many reasons why you are supposed to hire an expert on accounting and bookkeeping in UAE. Remember that when you hire the professionals, you won’t have to lodge the tax returns electronically. The accounting professionals or tax preparers can do the job for you.
Should you make a mistake with the calculations, you’re likely to get notifications from the local tax authority. You might also get penalized. Although this is not an audit, you would want to minimize negative interactions with the Federal Tax Authority as mentioned by Sarah Ferguson Tax and Audit Conusltants.
- Just disclose enough
You would be surprised as to how many amateurs and professionals try submitting too much information to the tax authorities. If your tax return is quite complex, then you would need explanations and disclosures added in the footnotes. Make sure you stay truthful, accurate, and also be concise. Don’t provide the tax authorities with copies of settlement agreements, sales agreements, and bank statements unless you’re asked by the tax authority in UAE later on.
Disclosures are best handled by tax professionals in UAE. A tax return preparer can distinguish a white paper disclosure from other forms. You should not be filing any disclosure without professional help.
When you get a small bill, settle it immediately
If you take a reasonable tax position, complete your tax return accurately and on time, and also check your math, then why do you have to pay a bill when you’re sent one? The answer to this is practical instead of principled. Remember that it does not ever pay to get into a fight with the local tax authorities. If a tax bill is quite small, don’t risk having even bigger problems with just a few Fils. Just pay then move on.
Of course, what’s small to a business can be a huge bill for another entity. There is no absolute standard. However, you should consider the possibility in paying any amount from a tax bill if you are unsure of whether you will be better off if you contest it.
Never amend without thinking twice
The flip side to paying a small tax bill isn’t amending your tax return to get a refund. An amended return is reviewed more thoroughly and more regularly in comparison to the initial returns. If you forgot to make some deductions or think that you’ll get some amount back if you make an amendment, stop and think twice. Consider whether or not you’re going to have a bigger problem for other matters that are on your tax return that are unrelated to an amendment if it is reviewed.
Avoid asking for money back
If you’re entitled to get a refund, it’s best to consider applying the refund to the next tax payment instead of asking for refund in cash. You will have a much lower profile when you file a return and apply a whopping refund onto an estimated tax payment for another tax season. This logic will apply to both amended and initial tax returns.
Keep good records
The more organized your business is with the receipts and all other forms of tax return documentation, the better off you will be when you’re actually selected for a tax audit in Dubai or any of the other emirates. Be prepared in producing them as quickly as possible when the tax authority asks to review them. Also, keep in mind your accounting department may be asked in offering more information as well.
With any decluttering of records, don’t immediately jump the gun. Your tax documentation has to be kept for at least five years. There are also many other instances wherein you are asked to maintain records much longer. This is especially if you’ve disposed of or acquired any business property.
Adjust and appeal
The FTA isn’t perfect. No one is – not even systems. They can still be wrong with an assessment and reassessment. If you believe your tax return is justified, you have to appeal your rights. When doing so, it’s best if you utilize the skills and experience of seasoned and qualified tax specialists. They will be able to represent your case and ensure your rights have been upheld by the FTA. It can take a few days to weeks for the tax authority to straighten out things. But, tax professionals and an audit firm in Dubai can be persistent with the FTA on your behalf. As a matter of fact, you can have an audit firm in UAE to review your rights and tax return this upcoming tax season.
Bonus tip: Don’t claim the flaky deductions
Don’t be scared of taking deductions and losses which you are entitled to. However, you should also not take tax positions that you are not comfortable defending. When you take a more reasonable tax position, you will likely find that you won’t have to deal with tax officers. If you actually do face a tax audit in UAE, it’ll likely be easier as well.
There are a lot of old wives’ tales or sayings that certain items can trigger a tax audit in Dubai or anywhere in UAE. This includes passive losses, sole proprietorship activities, and home office deductions. You can’t exactly predict triggers. However, you can adopt the mantra, ‘be reasonable,’ for every item that is on a tax return. If you currently don’t have decent claims, then don’t claim them.
Regardless of how careful you’re trying to be, there is really no way in guaranteeing that you will be free from tax audits in UAE. Sometimes, your business just comes up. Although audit rates have reached historic lows, the enforcement efforts of the Federal Tax Authority are now on the uptick, most especially for upper income registered businesses.
Be prepared for surprise audits by consulting with the seasoned auditors like Farahat & Co today!
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