UAE Tax Audits Rise as FTA Expands Data-Driven and Cross-Tax Reviews

• The UAE Federal Tax Authority reported a 46% increase in tax audit and review cases in 2025, while the value of taxes assessed increased by 66%.
• Audits increasingly focus on specific sectors and risk indicators, with the FTA using predictive analytics to monitor taxpayers and identify inconsistencies across filings.
• Businesses should ensure that VAT returns, customs declarations, Corporate Tax returns and financial statements reconcile and that supporting documentation can be produced at short notice.

Extended article

The UAE Federal Tax Authority’s Annual Report 2025 points to a significant increase in tax audit and review activity.

According to the report, published on 29 June 2026, tax audit and review cases increased by 46% in 2025 compared with 2024. The total value of taxes assessed increased by 66%, while the combined value of taxes and administrative penalties assessed rose by 67%.

Tax revenues generated through audit activities increased by 33.9%.

The figures indicate that FTA enforcement is becoming more extensive, targeted and data-driven. Businesses should expect the authority to compare information across tax returns, accounting records, customs declarations and third-party data.

Risk-based audits

The FTA used predictive analytics to monitor approximately 400,000 taxpayers. Its audits and reviews covered 16 key sectors across small, medium-sized and large businesses.

The Tax Audit Department conducted 14 projects targeting sectors with identified compliance risks. These included:

• digital content creators;
• e-commerce platforms;
• construction businesses; and
• the automotive sector.

This approach allows the authority to identify unusual patterns, inconsistencies and outliers across large taxpayer populations.

VAT and customs data are likely to be particularly valuable for this type of analysis because they provide detailed information about turnover, purchases, imports, exports and the timing of transactions.

Consistency across filings

One of the principal areas of audit risk is inconsistency between different filings and data sources.

The FTA may compare:

• VAT returns with general-ledger turnover;
• input VAT deductions with purchase records;
• customs declarations with import VAT reporting;
• zero-rated exports with customs exit documentation;
• Corporate Tax revenue with VAT-reported supplies;
• related-party invoices with transfer-pricing documentation; and
• financial statements with both VAT and Corporate Tax returns.

A difference does not necessarily mean that a return is incorrect. VAT turnover, accounting revenue and Corporate Tax revenue may legitimately differ because the respective rules use different tax points, valuation methods, exemptions and recognition principles.

However, unexplained differences are likely to lead to information requests. Businesses should therefore prepare documented reconciliations addressing both permanent and timing differences.

Free Zones and Designated Zones

Zone-based businesses face additional risk because the FTA may test whether the legal and operational conditions for the treatment applied have been met.

Relevant evidence may include:

• the formal status of the zone;
• contracts and purchase orders;
• inventory ledgers;
• warehouse and gate records;
• import and export declarations;
• transport documentation;
• proof of delivery;
• evidence concerning the use or consumption of goods; and
• invoices issued by the parties.

For Corporate Tax, the FTA may also examine whether a Free Zone Person has adequate substance and whether qualifying activities are actually conducted in or from the relevant zone.

VAT audit focus areas

Businesses should pay particular attention to recurring VAT risks, including:

• unsupported input VAT deductions;
• incorrect application of the reverse charge;
• missing export evidence;
• incorrect tax-point determination;
• unreported deemed supplies;
• errors involving credit notes and bad-debt relief;
• incorrect treatment of mixed or composite supplies;
• unreconciled import VAT;
• related-party valuation; and
• supplies involving Designated Zones.

Controls should operate when the transaction is processed, rather than being applied only during VAT-return preparation.

Short response periods

FTA information requests may provide only a limited period for submitting documentation. Businesses that wait until an audit begins may struggle to retrieve old contracts, customs records, customer declarations or proof of export within the available period.

An audit-ready file should therefore be maintained for each material filing period. It should include:

1. VAT-return workings.
2. General-ledger reconciliations.
3. Import and export reconciliations.
4. Details of manual adjustments.
5. Reverse-charge calculations.
6. Evidence supporting zero-rated supplies.
7. Explanations of differences between VAT, Corporate Tax and accounting figures.
8. Copies of relevant contracts and tax invoices.
9. Documentation supporting transactions involving Free Zones and Designated Zones.
10. Evidence of the review and approval of the return.

The increase in audit activity also demonstrates the need for tax, finance, customs and supply-chain teams to work from consistent data. A VAT position may be undermined where the invoice treatment is not supported by the actual logistics flow or customs records.

Businesses should conduct periodic internal reviews rather than waiting for an FTA inquiry. The objective should be to identify inconsistencies, quantify potential exposures and correct the underlying process.

Sources:

• UAE FTA Annual Report 2025
• Navigating the New Corporate Income Tax Landscape in the UAE
• Tax Audits: Overcoming Fear and Misconceptions