With the introduction of the UAE Corporate Tax, the Federal Tax Authority (FTA) has significantly expanded its audit and compliance activities. In 2025, Corporate Tax audits are no longer theoretical; they are actively conducted across mainland companies, Free Zone entities, and foreign branches operating in the UAE.
Many businesses mistakenly believe that filing the Corporate Tax return is the final step. In reality, filing is only the beginning. The FTA has the authority to audit Corporate Tax records for several years, reassess taxable income, and impose penalties where non-compliance is identified.
This guide explains how to prepare for a UAE Corporate Tax audit in 2025, what the FTA reviews, required documentation, common audit red flags, and best practices to reduce audit risk.
What Is a UAE Corporate Tax Audit?
A Corporate Tax audit is an examination conducted by the FTA to verify whether a business has correctly calculated and reported its taxable income in accordance with UAE Corporate Tax Law.
The audit may be triggered by:
– Risk-based selection by the FTA
– Inconsistencies between VAT and Corporate Tax filings
– Late registration or filing
– Significant related-party transactions
– Industry-wide audit campaigns
Who Can Be Audited
Corporate Tax audits may apply to:
– Mainland companies
– Free Zone companies (including QFZPs)
– Foreign branches
– SMEs and large groups alike
No business size is exempt from audit.
What the FTA Reviews During a Corporate Tax Audit
The FTA typically focuses on the following areas:
1. Corporate Tax Registration
Auditors verify whether registration was completed on time and whether penalties apply.
2. Financial Statements
The FTA reviews IFRS-compliant financial statements as the starting point for taxable income.
3. Taxable Income Computation
Adjustments from accounting profit to taxable income are reviewed carefully, especially:
– Disallowed expenses
– Exempt income
– Loss carryforwards
4. Deductible vs Non-Deductible Expenses
Expenses are tested to confirm they are wholly and exclusively incurred for business purposes.
5. VAT vs Corporate Tax Reconciliation
Sales and revenue figures are compared between VAT returns and Corporate Tax filings.
6. Related-Party Transactions
Transfer pricing compliance and arm’s-length pricing are closely examined.
7. Free Zone Qualifying Income
For Free Zone companies, the FTA checks QFZP conditions and qualifying income calculations.
Documents Required for a Corporate Tax Audit
Businesses should maintain the following records:
– Corporate Tax registration confirmation
– Audited financial statements
– Trial balance and general ledger
– Tax computation schedules
– VAT returns and reconciliations
– Invoices and contracts
– Payroll records
– Bank statements
– Transfer pricing documentation (if applicable)
Records must generally be retained for at least seven years.
Common Corporate Tax Audit Red Flags
The following issues often trigger deeper FTA scrutiny:
– Late Corporate Tax registration
– Mismatch between VAT and Corporate Tax revenue
– High related-party expenses
– Large management fees without agreements
– Personal expenses recorded as business costs
– Repeated losses without commercial justification
How to Prepare for a Corporate Tax Audit
1. Conduct a Pre-Audit Review
Review your Corporate Tax return internally or with a tax advisor before submission.
2. Reconcile VAT and Corporate Tax Figures
Ensure consistency between VAT returns and Corporate Tax computations.
3. Review Expense Deductibility
Confirm that all expenses claimed meet deductibility criteria.
4. Strengthen Documentation
Ensure contracts, invoices, and agreements are properly filed.
5. Prepare Explanations in Advance
Draft explanations for unusual transactions or significant year-on-year changes.
6. Perform a Mock Tax Audit
A mock audit helps identify weaknesses before the FTA does.
Penalties for Corporate Tax Non-Compliance
The FTA may impose:
– AED 10,000 penalty for late registration
– Penalties for late filing
– Penalties for incorrect tax returns
– Interest on unpaid tax
– Additional administrative penalties
Best Practices to Reduce Audit Risk in 2025
– Register and file on time
– Maintain IFRS-compliant accounts
– Keep proper documentation
– Avoid aggressive tax positions
– Seek professional tax advice
– Perform annual compliance reviews
FTA Powers During a Corporate Tax Audit
The FTA has the authority to:
– Request documents and explanations
– Conduct on-site inspections
– Interview staff and management
– Reassess taxable income
– Impose penalties
Failure to cooperate can result in additional sanctions.
Conclusion
Corporate Tax audits are now a permanent feature of the UAE tax system. Businesses that prepare properly, maintain accurate records, and adopt a proactive compliance approach can navigate audits with confidence and minimise risk.
Call to Action
Advanced AnalytIQ supports UAE businesses with Corporate Tax audit preparation, mock audits, FTA correspondence, and dispute resolution.
Contact us today to ensure your business is fully prepared for a UAE Corporate Tax audit in 2025.