8 Steps Dubai Businesses Must Take to ACE FTA Tax Audits
The UAE corporate tax regime, introduced under Federal Decree-Law No. 47 of 2022, has significantly changed the compliance landscape for companies. As the Federal Tax Authority (FTA) begins reviewing the first Corporate tax returns, FTA audits are now high on the agenda for companies in Dubai.
An FTA audit is more than just a check on your return filed—it is a detailed review of your accounts, books, disclosures, and compliance processes. Businesses that do not prepare risk penalties, disallowed deductions, and reputational damage.
This blog outlines the steps and examples on how businesses in Dubai can prepare for an FTA corporate tax audit in real-life scenarios.
1. Insights into the FTA Audit process
The FTA has general powers under Federal Decree-Law No. 28 of 2022 on Tax Procedures. In auditing, the FTA can:
- Evaluate ledgers, trial balance, and financial statements
- Evaluate underlying documents, contracts, and invoices
- Revisit the transactions for related party and transfer pricing policies
- Check the relief and exemptions like Small Business relief, Zero % rate Corporate tax
- Must review for substance requirements in the Free Zone and Anti-Money Laundering policy.
Example: On qualifying income, a Free Zone trading company claimed 0% corporate tax. In order to verify that sales to overseas purchasers are not end users of the commodities, the FTA requested the comprehensive contracts during the audit process.
2. Maintain Accurate and Complete Records
Record keeping is one of the most important FTA audit verifications. Proper accounting records must be kept by companies for at least 7 years after the relevant tax year.
This includes:
- Account and ledger’s Chart
- Invoices of the Supplier and customers
- Records of payroll and claims of expenses
- Corporate agreements within the companies
- Ownership Structure and Board Resolution
Example: A Freight forwarding company deducted 1 million AED as consulting expenses, but they failed to keep sign agreement. Then the Federal tax authority will be denied the deduction during the Audit of the company, which will increase taxable liability.
3. Promote Compliance with Transfer Pricing
For businesses who are having related party transactions, TP is a focal point in the Federal tax audits. Under articles 34, 35, 36 of the Corporate Tax law and Organisation for Economic Cooperation and Development’s (OECD) Principles, companies must follow;
- During the corporate tax return filing company must declare or report related p3. Promote Compliance with Transfer Pricing art transactions.
- The transaction should be justified at arm’s length.
- The company should prepare Transfer pricing documentation in the (Master File and Local File) once the threshold is exceeded.
Example: A UAE Information technology firm provided software to its parent company in the United States less than the market price. The FTA federal tax authority, questioned the pricing change to taxable income to match the market price.
4. Ensure the Exemptions and Relief are claimed correctly
During the audits Federal tax authority analyses whether the company applied the relief correctly, such as
- SBR ( Small Business Relief)
- Qualifying income under the free zone
- Business restructuring relief
- Dividends and capital gain income under the Corporate tax participation exemption.
An example of a Free Zone consultancy claimed the 0% rate, yet it had generated more than 5% of its revenues from clients in the mainland through non-qualifying activity. The FTA found that the entity was not eligible to get the benefits of Qualifying Free Zone Person (QFZP) due to the violation of de minims condition.
5. Carry out a Mock audit for internal reviews
Before the Federal Tax Authority audit comes, companies can do internal audits to ensure that there is no error, such as,
- Reconciling of corporate tax returns with the audited financial statements
- Need to clarify or recheck the expense deductions against the FTA guidelines
- Review the intercompany Loans and pricing if any.
- Verify all disclosures were properly filed or not like Tax group selections, change in accounting period, etc.
Example: An IT company conducted an internal audit and found that expenses interest is more than 30% of the EBITDA limit under the 30 article. And adjusted it before the FTA audit to avoid any potential penalty from the FTA.
6. Arrange a session with the Compliance Team
The auditor of FTA typically interviews the finance personnel during the audit. Businesses should make the personnel aware of the term given:
- Should know corporate tax law and the ministerial decisions of the UAE.
- They can able to explain the expenses claim and the relief claim
- Must be aware of supporting documents and where the documents are stored.
- They ought to have specific guidelines for communications protocols for dealing with auditors.
Tip: So Many Businesses is recruiting a corporate tax compliance officer to enable communication between management, accountants and auditors.
7. Use the Technology to streamline the compliance
Recordkeeping of documents and data digitally reduces human error and helps in the audit to ensure there is no error. Business owners in the UAE are adopting this method proactively
- Accounting system cloud-based with the trails of audit
- Document storing system for invoices and contracts
- Software that is accredited by the Federal Tax Authority
8. Should be ready for post-FTA Adjustments
FTA audit may cause;
- Tax Reassessments
- Fines and penalties on the business for non-compliance
- FTA can request for Voluntary disclosure
Businesses should have having strategy for response.
- Businesses should involve FTA-registered tax agents for the representation professional tax advisors for representation.
- File voluntary disclosures if errors are discovered
- Should cooperate with auditors transparently
Fictional Case Study
Case: Info Solutions FZCO:
- Filed its initial CT return for FY 2024, reporting a claim for Free Zone 0% rate.
- In 2026, FT Amid reported that 15% of revenues were earned from non-qualifying activities.
- The FTA characterised the entity as non-qualifying and applied 9% CT to all profits.
- Extra liability: AED 2.3 million, along with late payment penalties.
Lesson: Companies must monitor qualifying conditions throughout the year, not just when filing.
- Maintain accurate financial and transactional records
- Prepare robust transfer pricing documentation
- Test eligibility for reliefs and exemptions regularly
- Conduct pre-audit compliance reviews
- Invest in technology and staff training
By adopting these measures, businesses can face FTA audits with confidence and avoid costly surprises.
Conclusion
Preparation for an FTA company tax audit is not a standalone exercise, but rather an ongoing compliance strategy. Dubai businesses should:
Maintain proper financial and transaction records
- Generate robust transfer pricing documentation
- Test for eligibility of reliefs and exemptions regularly
- Conduct pre-audit compliance verification
- Spend on technology and training personnel
By doing these, businesses can face FTA audits confidently and avoid costly surprises.
How Flyingcolour Tax and Consultant Can Help?
At Flying Colour Tax Consultant LLC, we assist Dubai businesses with:
- Audit readiness assessments and mock audits
- Transfer pricing documentation and related-party compliance
- Corporate tax filing and voluntary disclosures
- FTA audit representation and clarifications
To learn more about How the Dubai Businesses Can Prepare Tax Audits for Federal Tax Authority, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.