Differences Between Excise Tax Audits and Other Tax Audits in the UAE
In the UAE, tax rules are tight, and the FTA doesn’t leave much room for error. Doesn’t matter if you run a small setup or a big company, an audit can still come your way. And it’s not just about looking at numbers. It’s really about checking if you’re sticking to the rules.
The FTA runs tax audits to catch mistakes, find gaps, and make sure everyone’s playing fair. These audits can be about VAT, Corporate Tax, Excise Tax, and even Withholding Tax. But not all audits are the same. Each one has its own rules, triggers, and risks.
A lot of businesses don’t realize this. They treat all audits the same way and that’s where problems start. If you don’t know what kind of audit you’re dealing with, you might miss something important. And that can cost you.
In this article, we’ll walk through what excise tax is, how an excise audit is done, how it stands apart from audits like VAT or Corporate Tax, and what to expect if you’re ever facing an excise tax auditor.
Purpose and Scope of Audits
Not all tax audits work the same way. Some go deep into your finances, others focus more on how you handle specific goods. It all depends on what kind of tax is involved.
Excise tax audits are a bit more targeted. They deal with specific products—things like tobacco, sugary drinks, and vapes. The goal here isn’t just about your accounting books. It’s about how these goods move, how you declare them, and whether you’re paying the right excise tax on time. A lot of this is self-declared, so the FTA steps in to double-check if businesses are being honest.
Other tax audits, like those for VAT, Corporate Tax, or Withholding Tax, usually go wider. These look at your overall finances. The FTA might go through your systems, track your income and expenses, check intercompany deals, and see if everything adds up the way it should.
No matter which audit it is, the core reason is the same: to find any under-reporting, wrong interpretations of the law, or straight-up tax evasion.
Regulatory Framework in the UAE
Different taxes in the UAE follow different rules, so if a business is being audited, it helps to know which law applies to what.
Excise tax rules come under Federal Decree-Law No. (7) of 2017. The detailed steps are covered in Cabinet Decision No. (52) of 2019. These explain how businesses should handle goods like tobacco, energy drinks, and other items that fall under excise audit applicability.
For VAT, everything is based on Federal Decree-Law No. (8) of 2017. Along with the VAT Executive Regulations, it talks about how to charge, record, and report VAT—right down to how invoices should look and how often you need to file returns.
Corporate Tax is the newest one. It’s under Federal Decree-Law No. (47) of 2022. This law pushes businesses to meet international standards, especially on things like Transfer Pricing. If your business has connections outside the UAE or deals with group entities, this becomes even more important.
Triggering Events
An excise tax audit usually starts when there are discrepancies in your monthly excise tax declarations. This could happen if there are mismatches in your import or export records, inconsistencies in warehousing documentation, or if the FTA spots issues through its risk profiling system.
For VAT and Corporate Tax, a variety of things can trigger an audit. If you make a voluntary disclosure or submit a refund claim, that could raise some questions. Audits may also happen if you make changes to your returns after they’ve been filed, or if you miss deadlines for submitting returns. Another red flag is if your financial statements show mismatches between your reported revenue and expenses—this gets the FTA’s attention.
Documentation and Record Requirements (UAE-specific)
For excise tax audits, businesses need to have certain documents in place. These include:
- inventory records that track excise goods,
- warehouse registration papers,
- customs clearance data
- excise pricing list
- electronic declarations submitted through the FTA portal.
When it comes to VAT, you’ll need to keep
- tax invoices, ensuring your input and output taxes match up,
- Ensure that all imports are clearly identified as either for business purposes or not.
- During the FTA audit, properly disclose any imports subject to reverse charge mechanism, with supporting documentation to substantiate the VAT treatment applied
If you deal with e-commerce, you’ll need records related to those transactions as well as proof for any exempt or zero-rated supplies.
For Corporate Tax, the FTA will expect businesses to provide
- audited financial statements, along with their General Ledger and Trial Balances
- justified expenses,
- disclosure of any transactions with related parties,
- Transfer Pricing reports if applicable
If your business opts for a group tax election, that documentation will be needed too.
Audit Methodology by FTA
When it comes to excise tax audits, the Federal Tax Authority (FTA) takes a more hands-on approach. Auditors will often carry out physical inspections of warehouses or manufacturing sites where excise goods are stored or produced.
They track the movement of excise goods, ensuring that these items are properly documented and taxed. Auditors will also reconcile stock with customs and import data to confirm that goods entering the country match what’s being declared.
This helps prevent underreporting or overreporting of excise goods. Finally, excise tax auditors will validate excise tax declarations to ensure that businesses are properly reporting the amount of tax owed on the goods.
For VAT and corporate tax audits, the approach is a bit different. The FTA relies heavily on data analytics to analyze financial records and flag any discrepancies. They often request supplier and customer confirmations to verify the accuracy of the tax reports.
If something looks off, they may sample high-risk transactions to dig deeper into the numbers. For companies that use an ERP system (Enterprise Resource Planning), auditors will conduct a walkthrough to check for any automatic tax postings, ensuring everything is correctly recorded and processed according to the regulations.
Risk and Penalty Exposure
When it comes to excise audit, the penalties can vary. If a business incorrectly declares excise goods, fails to register properly, or leaves out items that should be taxed, they can face administrative penalties. These could be fixed amounts or percentage-based fines depending on the violation. The FTA takes these errors seriously, as they can lead to a loss of tax revenue.
For VAT and corporate tax, the risks are a bit broader. If a business makes mistakes, they may face re-assessments from the FTA. This means the FTA could adjust your tax amounts based on their findings.
If a business ends up claiming more input tax than they should or just delays their payments, they can face interest and penalties as per the rules in Decision No. 40 of 2017. And if things look even more suspicious, like tax evasion, the FTA may decide to take it to court or even start criminal proceedings.
Duration and Frequency in UAE Context
Excise audits are often conducted for businesses like manufacturers, importers, or anyone storing excise goods. Sometimes the FTA gives a heads-up, sometimes they just show up unannounced. It’s mostly to make sure you’re following the right steps when it comes to excise tax management.
Now for other tax types, like VAT or corporate tax, audits are more about patterns. They’re planned based on how risky your industry is, when your last audit happened, and how your business scores on the FTA’s compliance checks.
These audits aren’t always about what’s happening right now. The FTA can go back as far as 5 years to review past records and dig into any red flags.
Required Expertise and Advisory Involvement
Excise audits aren’t just about crunching numbers—you need someone who really gets how logistics work, knows the ins and outs of customs papers, and understands all the rules around storing and moving excise goods. That kind of operational know-how matters a lot.
For VAT and corporate tax audits, the game’s a bit different. You’ll need experts who are solid with financial reporting, familiar with IFRS, and can handle stuff like ERP systems, international tax rules, and Transfer Pricing. It’s more about how your finances are set up and reported.
Either way, being ready before an audit hits and keeping things in check as you go is what really helps avoid trouble later on.
Real-World Examples
Here are some examples of how a simple audit resulted in multiple problems.
1. Soft Drink Manufacturer Flagged for Broader Review
A UAE-based beverage company initially went through a routine excise tax audit due to their product category. However, during the review, inconsistencies were found in their VAT invoices and unreported intercompany expenses. This led to an extended audit covering both VAT and corporate tax obligations.
2. Tobacco Distributor Cleared in Excise, Triggered VAT Check
After successfully completing an excise audit, a tobacco distributor was later selected for a VAT review when the FTA noticed gaps in documentation—particularly around exempt sales. This case highlights how clearing one audit doesn’t necessarily shield a business from others.
3. Electronics Importer Penalized Over Undeclared Stock
A business registered for excise tax faced penalties when an audit uncovered discrepancies in reported inventory. The case escalated to a corporate tax review, focusing on their related party transactions and capital structuring.
Conclusion
Not all tax audits are created equal. Excise tax audits aren’t exactly like other tax checks. They’ve got their own set of rules and paperwork, and the process can feel different compared to VAT or corporate tax reviews. So, trying to use the same approach for every audit just doesn’t work. It really depends on what kind of tax you’re dealing with and how risky your industry looks from the FTA’s point of view.
Advisory tip: Working with experienced, UAE-based tax professionals, like the team at ADEPTS can make a big difference. They understand the ins and outs of excise tax management while also keeping an eye on the bigger compliance picture.
Want to avoid surprises during an audit? Let’s talk. Reach out to ADEPTS for a customized tax audit readiness check and a deep dive into your compliance risks.
Whether you’re gearing up for an excise audit, a corporate tax review, or just want to stay one step ahead of the FTA, our expert-led support is built around UAE law and your business needs.
FAQs:
Excise tax audits aren’t just for manufacturing businesses. If your company imports, distributes, or even just stores items like tobacco, sugary drinks, or vape products, the FTA can still audit you. They look at whether things are declared right, taxed properly, and follow the rules.
Yes, excise tax audits can be conducted at any given time by the federal tax authorities without any prior warnings. if the FTA is suspicious of your records it will not warn you and will conduct a surprise visit. This is why businesses who are dealing with excise goods need to stay very vigilant and audit ready at all times.
The tax audits are not only limited to financial paperwork. like in case of excise tax audit, the FTA can check warehouse records, stock levels, customs data, and even the physical inventory. Tax audits cover the whole supply chain and not just one aspect.
No, using a third party logistics provider does not reduce your risk in any way and the FTA will still hold your business accountable. your business if dealing with excise goods is expected to have an accurate record and always stay compliant.
Yes, the FTA reviews different kinds of tax together especially if there are overlapping issues in reporting, stock levels, or declarations. Staying compliant across all tax areas helps avoid trouble during combined reviews.
Even if your declarations are fine, the difference in stock levels can raise questions and concerns during your company’s audits. Having inaccurate records of stocks means there are underreporting or unrecorded movements. This leads to deeper checks, penalties, or reassessment.
Yes, even occasional importers of excise goods like tobacco or sugary drinks must register for Excise Tax in the UAE. The law doesn’t differentiate between frequent and one-time activities but if you bring in excise goods, you’re required to register and comply with all related excise tax obligations.
To prepare for a random excise tax audit, businesses should maintain clean and updated records. They need to keep inventory logs, tax invoices, customs papers, and system backups. Conducting regular internal checks, training employees on excise tax management, and consulting with an excise tax auditor can help spot issues early and stay compliant.
Yes, corporate tax audits in the UAE often look closely at related party transactions. The FTA checks if prices between connected entities follow fair market value rules. If not, they may apply Transfer Pricing adjustments to prevent profit shifting or tax avoidance, especially in group structures.
Yes, submitting voluntary disclosures before an audit can sometimes reduce or even prevent penalties. The FTA may view early correction as a sign of good faith. But timing matters—if the excise tax auditor finds the issue first, the chance to avoid fines gets smaller.
References
- Amending Some Provisions of Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violation of Tax Laws in the UAE Cabinet Decision No. 49 of 2021. https://tax.gov.ae/DataFolder/Files/Legislation/Cabinet%20Decision%20No%2049%20of%202021%20%20For%20Publishing.pdf.
- Federal Decree by Law No. (7) of 2017 on Excise Tax. https://www.uaelegislation.gov.ae/en/legislations/1223/download.
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. https://mof.gov.ae/wp-content/uploads/2022/12/Federal-Decree-Law-No.-47-of-2022-EN.pdf.
- United Arab Emirates Legislations | Federal Decree by Law on Concerning Value-Added Tax (VAT). https://uaelegislation.gov.ae/en/legislations/1227.
