VAT Compliance Review

A VAT Compliance Review is an internal or third-party check to ensure that your VAT
returns, input VAT claims, reverse charge transactions, and record-keeping are correct
before the Federal Tax Authority (FTA) conducts an official audit. Unlike an FTA audit,
which can lead to penalties, a compliance review is a preventive step to identify and
correct errors in advance.

It is recommended to conduct a VAT Compliance Review at least once every quarter
or before filing each VAT return. For large corporations with complex transactions, a bi- annual or annual detailed compliance review is essential to reduce risks of FTA
penalties and voluntary disclosure errors.

A VAT Compliance Review checks:

• Accuracy of VAT returns filed with the FTA
• Input VAT claims against valid tax invoices
• Reverse charge mechanism (RCM) transactions on imports and services
• Zero-rated and exempt supplies
• Intra-GCC supplies reporting
• Invoice formatting and record-keeping compliance as per FTA requirements

Yes. A VAT Compliance Review identifies potential errors, missing documents, or misclassified transactions before the FTA audit. If corrected in advance, businesses can avoid administrative penalties, reputational risks, and cash flow issues during an official audit.

Typical errors include:

• Claiming input VAT without valid tax invoices
• Incorrect application of the reverse charge mechanism
• Misreporting zero-rated exports and exempt supplies
• Errors in voluntary disclosures and VAT refund claims
• Using improper invoice formats not accepted by the FTA

Cross-border supplies and imports are often subject to reverse charge mechanism (RCM). A compliance review ensures that import VAT, customs declarations, and export zero-rating rules are correctly applied, preventing overpayment or penalties for underreporting.

Yes. Although many Free Zones are designated for VAT purposes, companies must still comply with VAT rules when dealing with Mainland entities or foreign clients. A VAT Compliance Review helps Free Zone businesses ensure proper treatment of exempt, zero-rated, and standard-rated supplies.

By detecting issues like late filings, incorrect disclosures, or improper VAT refund claims, a VAT Compliance Review allows businesses to correct errors before the FTA imposes penalties. This proactive approach saves significant costs and protects a company’s compliance rating.

VAT compliance checks typically cover up to 5 years, as per FTA record-keeping requirements. Businesses are required to retain tax invoices, credit notes, and VAT records for at least 5 years (and up to 15 years for real estate-related transactions).