The UAE’s inaugural corporate tax filing period concluded on 31st September 2025, with the Federal Tax Authority (FTA) now being able to access the return information from over 640,000 registered businesses (FTA, October 2025). The information is precisely what motivates the selection of audits. Any chartered accountant in Dubai will let you know that the FTA doesn’t select files randomly. It has a risk-based scoring model, which ranks all registered businesses on the basis of their filing history, sector benchmarks, and their own records.

If a business is aware of those risk indicators, most of them can be corrected before a notification is received. Let’s take a look at the nine most common flags that the FTA will monitor and how they can be cleared on time.

Why Is the FTA Auditing More Businesses Now?

The FTA got a gift from corporate tax that it didn’t have when it was only VAT – it had two datasets for the same business. Cross-referencing of VAT returns, corporate tax returns, customs declarations and payroll records is now possible. Both taxes are subject to the same procedural law, Federal Decree-Law No. 28 of 2022, meaning that audit notices, requests for evidence and penalties are based on the same process.

The selection process is carried out through an ISO 31000-certified Risk Management system. A higher risk score is associated with a higher likelihood of being audited. An audit does not indicate that there is any wrongdoing; however, an audit is not likely to be requested on a clean file.

The 9 Red Flags That Raise Your Audit Risk

1. VAT and corporate tax returns that don’t reconcile

The most visible of all flags. The mismatch is automatically identified when your VAT return shows AED 12 million in supplies and your corporate tax return shows AED 10 million in revenue. There are valid differences that exist that are exempt income, timing, and out-of-scope supplies; but the differences must be documented, not silenced.

2. Sharp swings in revenue or profit

If your profits plummeted just after corporate tax came in, or if your profits have rocketed and not risen in line with your sector, it raises questions about how the revenue was recognized and what expenses were allocated to your profits. If you’re deviating, it’ll stand out, since the FTA is comparing your business to your peers.

3. Frequent or unusually large VAT refund claims

Claims for refunds are given more scrutiny than payments for refunds. A business that has repeatedly claimed refunds or claimed amounts far exceeding the size of the business should be prepared to face line-by-line testing of input VAT records.

4. Repeated nil returns or continuous losses

If a registered trading business is filing nil returns every period, or if a business has consistently been making losses, but continues to operate, there is a big question: How is this business being run? Losses may be real, but the FTA may seek to establish a sense of business logic behind such losses.

5. Late registration, late filing, late payment

Your compliance history is directly reflected in your risk score. The penalty for failure to register for corporate taxes is AED 10,000 in itself, and any late tax returns or tax payments further build up a pattern of poor internal controls. Flags can be added across periods. Flags accumulate across periods. Deadlines, registration rules, and penalty schedules are all published on the Federal Tax Authority’s official portal, so an unnoticed deadline is treated as a control failure, not an excuse.

6. A pattern of amendments and voluntary disclosures

It would be normal to make corrections for occasional errors. It is a sign of clean-up after the fact to constantly change what has been returned, particularly when changes are made which cut taxes. More problematic still are so-called “voluntary” disclosures made after an audit notice has been received, which frequently expand the scope of the review.

7. Related-party transactions with no transfer pricing file

Corporate tax legislation requires payments to group companies, shareholders or connected persons to be made on an arm’s-length basis. The transfer pricing audit trigger of large volumes from related parties without supporting transfer pricing documentation is a rapidly expanding one, especially for holding structures and multinationals.

8. Free zone 0% claims without substance to back them

Claiming the Qualifying Free Zone Person status is not an illegal activity, but the 0% rate relies on sufficient substance, qualifying income, and audited financial statements. The workings to separate out the mainline sales and the non-qualifying income are missing in a 0% claim, putting the entire benefit at risk.

9. Deductions out of line with your sector

Any expense ratios that are significantly higher than industry averages are compared and noted. So do clearly non-deductible items, such as owner expenses, personal travel, or traffic fines, through the company. These are easily detected by an auditor and difficult to justify.

How Do Chartered Accountants Clear These Flags Early?

The majority of these risks can be boiled down to one discipline: reconciliation and documentation before notice, not afterwards. In reality, this involves a pre-filing health check in which VAT, corporate tax, payroll and customs data are correlated, and written explanations for any discrepancies.

A structured review of this type generally will include review of reconciliation between returns across tax types, preparation of transfer pricing files for related party transactions, review of the substance of transactions in the free zone with the applicable conditions, and filing off any voluntary disclosures for transactions with known errors before the FTA initiates an inquiry. The sequence of the disclosure is a huge benefit when it is made before an audit notification, as compared to after.

Several companies in the UAE provide this type of pre-filing audit health check. Here are some to consider in your initial list:

• Bestax Chartered Accountant in Dubai a specialist choice for cross-tax reconciliation reviews, transfer pricing documentation, and voluntary disclosure support ahead of FTA deadlines.
• Farahat & Co a long-established Dubai practice covering tax agency services, audits, and FTA dispute representation.
• Jitendra Chartered Accountants offers corporate tax and VAT compliance reviews alongside statutory audit services.
• CDA Accounting & Bookkeeping focuses on SME bookkeeping, VAT filing, and corporate tax readiness checks.
• HLB HAMT is part of the HLB international network, handling transfer pricing, free zone substance assessments, and group structures.

This is reinforced by the 2026 penalty reforms. Cabinet Decision No. 129 of 2025, which took effect from April 2026, shifted the UAE to a compliance-based model, which includes a 14% annual non-compounding interest on late payments, a 1% monthly rate on voluntary disclosures, and a reduction in the fixed penalties for errors discovered by the FTA. Now it is abundantly clear that businesses that identify and correct their own errors are being rewarded.

Frequently Asked Questions

Does an FTA audit mean my business did something wrong?

No. An audit is not a function of the number of transactions; it is a function of risk level, and some sectors such as e-commerce, construction, and international trade are highlighted due to transaction complexity. Regulatory interest does not equate to guilt, and a higher risk score does not indicate that the company is guilty of anything.

How far back can the FTA audit?

The Tax Procedures Law allows for the FTA to audit within 5 years of the end of the tax period in general, and longer periods in cases of tax evasion or failure to register. Documentation should be retained for more than seven years because corporate tax records must be maintained for seven years.

Is it too late to fix an error once an audit notice arrives?

An audit can be conducted, but it is less favorable in that case, and may broaden the scope of the audit if a disclosure is made after notification. The best disclosure, of course, is ahead of time before the FTA gets in touch.

Are small businesses and freelancers really within audit scope?

Yes. All the startups, SMEs, and licensed freelancers are registered taxable persons and can be selected. Small Business Relief could be applied to a business if its annual turnover is AED 3 million or less, although the election to avail of the relief and the turnover figure in support of the election can be reviewed.

What documents does the FTA typically request during an audit?

Be prepared for the request of financial statements, general ledgers, tax invoices, contracts, bank statements, customs documents, payroll records, and sector-specific documents like transfer pricing files or free zone substance evidence. Filed returns are typically accompanied by well-organised records that trace back to the returns, which usually allow a review at desk level.

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