Businesses now have to handle not only routine VAT filings but also heightened scrutiny in the form of VAT audits and refund reviews as the UAE’s VAT laws develop. In order to maintain compliance and optimise your financial efficiency in 2025, it is imperative that you comprehend the distinction between these two procedures.
This blog explains the differences between VAT audits and VAT refund reviews, as well as what causes them, who is at risk, and proactive ways that UAE businesses can handle them. This guide provides the information you need, whether you’re a tourist company handling refund claims or a VAT-registered entity in a free zone.
What Is a VAT Audit and Who Triggers It?
In the United Arab Emirates, a VAT audit is a formal examination conducted by the Federal Tax Authority (FTA) to confirm whether a company is correctly reporting and paying VAT. Red flags in your tax behaviour may cause an audit, or it may be random.
- The FTA may suspect misreporting or evasion if VAT returns contain repeated errors.
- Deeper investigation is frequently prompted by large or irregular VAT refund claims.
- Businesses may also be flagged for filing or amending returns after the deadline.
The FTA will conduct a thorough audit of your transactions, records, and filings as a result of these triggers, which point to either possible fraud or compliance gaps.
If you don’t prepare, you risk heavy fines, harm to your reputation, and even having your VAT registration suspended. Companies are encouraged to keep accurate and up-to-date records, train teams, and conduct internal reviews regularly to ensure audit readiness.
What Happens During a VAT Audit?
After being chosen, your company is subjected to a comprehensive review that looks beyond just filed returns. Usually, the FTA will ask for access to:
- Invoices for sales and purchases that include VAT computations
- Ledgers and bank statements to correspond with transactions
- If necessary, import and export customs documentation
Auditors assess whether the applied rates and exemptions comply with UAE law by comparing declared VAT with actual records. They might also ask for more information or clarifications, and they might interview you.
The audit goes more smoothly and there are fewer possible penalties when there is prompt response and clear documentation. If mistakes are discovered, you will be required to fix them and might be fined.
What Is a VAT Refund Review?
An audit is not the same as a review of a VAT refund. It begins when a company files a refund claim, which causes the FTA to assess the veracity and correctness of the request.
Verification of overpaid taxes or input VAT credits that the company wishes to recover is the focus here, not compliance infractions. It might be necessary to review:
- When reimbursement sums are excessively large
- If the supporting documentation is lacking
- When requests for refunds are made frequently
The FTA will confirm whether the amount claimed is consistent with business operations and is backed by legitimate invoices. Refunds may be denied or delayed as a result of any disparities.
Process to Claim VAT Refund in UAE
Depending on the requirements and eligibility of particular groups, such as foreign companies, UAE citizens constructing new homes, and tourists, the UAE government provides a variety of procedures for requesting VAT refunds. Every procedure has unique eligibility requirements and filing requirements and is run under a different scheme.
VAT Refund for Foreign Businesses
Under the “VAT Refund Scheme for Foreign Businesses,” which aims to avoid double taxation and facilitate international trade, foreign companies are able to recover VAT. If eligibility requirements are satisfied, this program permits annual claims.
- VAT Eligibility Requirements for International Companies
- must not have a permanent location in the United Arab Emirates.
- cannot operate normally in the UAE or be a taxable entity.
- must be registered in their home country with the proper authority.
- AED 2,000 is the minimum amount for a refund claim.
- Claims allowed once per 12-month period.
VAT Refund Schemes in the UAE
| VAT Refund for Foreign Businesses | Foreign businesses | To allow recovery of VAT on business expenses incurred in UAE |
| VAT Refund for UAE Nationals Building New Residences | UAE Nationals | To support citizens with construction costs |
| Electronic Tax Refund Scheme for Tourists | Tourists | To promote tourism by refunding VAT on purchases |
Each of these schemes is governed by different application processes and documentation requirements. Ensuring accuracy in claim submissions increases the chances of quick processing.
VAT Refund vs VAT Audit: Key Differences
Although they both entail dealing with the FTA, their goals, parameters, and results are very different.
- The goal of audits is to find non-compliance, and the goal of refund reviews is to verify refund claims.
- Trigger: Refund applications initiate refund reviews, while anomalies initiate audits.
- Impact: Refund reviews may result in claims that are denied or delayed, while audits may result in fines or legal action.
Businesses can minimise disruptions and preserve their credibility with tax authorities by handling each difference appropriately when they are aware of it.
Best Practices for Audit and Refund Preparedness
Being proactive is key when preparing for VAT reviews, whether they are audit or refund-related. Businesses should:
- Keep VAT records neat and orderly.
- Use accounting software to automate VAT documentation.
- Every month, reconcile VAT returns with ledgers.
- Assign finance teams to compliance roles.
If chosen for review, these procedures lower your risk and improve your capacity for prompt response.
Conclusion
Refund reviews and VAT audits are two sides of the same coin; one facilitates financial recovery while the other assures compliance. The UAE’s tax system is changing in 2025, so companies must remain vigilant.
You can maintain legal compliance and safeguard your financial interests by being aware of the subtle differences between these two procedures. Your company will flourish not just survive in the UAE’s VAT environment if you are proactive in your compliance, accurate in your documentation, and consistent in your reporting.
FAQ’s
A VAT audit is a formal investigation conducted by the UAE Federal Tax Authority (FTA) to verify whether a business is correctly recording, reporting, and paying Value Added Tax. It typically involves a review of financial documents, VAT returns, invoices, and bank statements to ensure compliance.
Taxation refers to the broader system of levying taxes like VAT, while auditing is the process of reviewing whether those taxes were calculated and reported correctly. Auditing ensures a business has fulfilled its tax obligations under VAT law.
A VAT refund is recorded in accounting by debiting the VAT receivable account and crediting the relevant cash or bank account once the refund is received. This reflects the reversal of overpaid tax initially submitted to the FTA.
VAT refunds are considered a receivable asset until the money is reimbursed. They must be reflected under current assets in the balance sheet and reconciled regularly with VAT returns to avoid discrepancies during audits.
The duration of a VAT audit varies based on business complexity, but typically it ranges from a few days to several weeks. Delays may occur if documentation is missing, unclear, or if follow-ups are required by the FTA.
