TRW & Co · Tax disputes
FTA Tax Audits, Penalties and Disputes in the UAE
An FTA tax audit UAE businesses receive can end in an assessment with penalties that now accrue at 14% a year. Challenges run through FTA reconsideration, a Tax Disputes Resolution Committee and the federal courts, each with 40-business-day deadlines. This guide explains the audit process, the April 2026 penalty reform and how to protect your position.
Key pointThe reconsideration request filed within 40 business days usually decides the case. Disputed tax must also be paid before a TDRC objection is even accepted, so cash planning starts the day an assessment looks likely.
At a glance
Governing law
Federal Decree-Law No. 28 of 2022 on Tax Procedures, amended from 1 January 2026, governs audits, assessments, penalties and disputes for all federal taxes.
Penalty reform
Cabinet Decision No. 129 of 2025, effective 14 April 2026, introduced a 14% annual late-payment charge and restructured voluntary disclosure penalties.
Reconsideration first
A reconsideration request must reach the FTA within 40 business days of notification; without it, a TDRC objection is generally not admissible.
TDRC threshold
Tax Disputes Resolution Committee decisions on disputes of AED 100,000 or less are final; larger disputes can go to the federal courts within 40 business days.
Pay to dispute
Disputed tax must be paid before a TDRC objection is accepted, and at least half of disputed penalties paid or guaranteed before a court appeal.
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The short answer: what an FTA tax audit UAE businesses face looks like
An FTA tax audit UAE businesses receive is a review by the Federal Tax Authority of VAT, excise or corporate tax returns, records and transactions, either at the FTA’s offices, at the taxpayer’s premises or as a desk review. It can lead to a tax assessment with administrative penalties. The taxpayer can challenge the outcome through reconsideration by the FTA, an objection to a Tax Disputes Resolution Committee (TDRC) and then the federal courts, with deadlines counted in business days.
The penalty landscape changed on 14 April 2026, when Cabinet Decision No. 129 of 2025 replaced the old late-payment penalties with a 14% annualised charge and restructured voluntary disclosure penalties. Amendments to the Tax Procedures Law from 1 January 2026 also changed limitation periods, refunds and how errors are corrected.
This guide explains how audits run, how assessments and penalties are calculated, how to challenge them and what to do in the first weeks. Our practice page on tax disputes in the UAE covers litigation strategy in more depth.
The legal framework
Audits, assessments, penalties and disputes are governed by Federal Decree-Law No. 28 of 2022 on Tax Procedures and its Executive Regulation, which apply to every federal tax. The substantive rules sit in the VAT Law (Federal Decree-Law No. 8 of 2017), the Excise Tax Law and the Corporate Tax Law (Federal Decree-Law No. 47 of 2022).
Recent instruments to know:
- Federal Decree-Law No. 17 of 2025, in force from 1 January 2026, amended the Tax Procedures Law: a default five-year period for audits and assessments with listed exceptions, five-year limits on refunds and credit balances, a one-year transitional window for older balances, and correction of most errors through a later return instead of a voluntary disclosure.
- Federal Decree-Law No. 16 of 2025, also from 1 January 2026, amended the VAT Law, including the power to deny input tax linked to evasion.
- Cabinet Decision No. 129 of 2025, published in November 2025 and effective from 14 April 2026, overhauled administrative penalties for VAT and excise and aligned the framework across the tax laws.
The texts are on the FTA legislation page, and policy announcements come from the Ministry of Finance. Tax disputes are federal, so the DIFC and ADGM Courts do not hear them even where the taxpayer is a DIFC or ADGM entity.
How an FTA tax audit UAE process runs
The FTA selects cases from risk analysis of returns, third-party and customs data, refund claims and inspection visits. Large refund claims and voluntary disclosures often prompt a review. The FTA gives advance notice of a field audit and can ask for records, explanations, system access and information in Arabic. Inspection visits by FTA teams, particularly for excise goods and tax invoicing, are a separate and growing activity.
- Triage the notice. Identify the tax, periods and issues, diarise every deadline and appoint one coordinator for all contact with the FTA.
- Preserve records. Suspend routine deletion and secure ERP data, contracts, invoices, customs declarations, payroll, bank records and correspondence.
- Review before producing. Read what is being handed over, identify weak points and prepare short written explanations rather than letting documents speak for themselves.
- Decide on disclosure. If you find an error the FTA has not raised, compare the cost of correcting it now with the cost of an assessment.
- Engage on findings. Respond to preliminary findings in writing with evidence and legal analysis; many issues narrow at this stage.
- Prepare the challenge. If an assessment is likely, plan the reconsideration request, cash for payment conditions and the evidence for a TDRC objection.
Limitation and record-keeping
The general rule is that the FTA may audit and assess within five years from the end of the relevant tax period, with longer periods in specific cases listed in the law. Where a refund or credit claim is made late in the five-year window, the FTA can review it within two years of submission. Records must be kept for the statutory periods, which are longer for corporate tax and real estate than for most VAT records.
Documents and evidence for an FTA tax audit UAE file
Most audits are decided on documents. The FTA tests the chain from the return to the ledger to the commercial evidence, and gaps in that chain are usually resolved against the taxpayer. Building the file before the auditor asks for it is the single most effective preparation for an FTA tax audit UAE businesses can make.
- The decision trail: every FTA notice, information request, audit finding and assessment, with screenshots showing when each arrived on EmaraTax, because deadlines run from notification.
- Transaction evidence: contracts, tax invoices, credit notes, customs declarations, delivery records and bank payments, organised by issue rather than by date.
- Reconciliations: returns to general ledger to audited financial statements, and customs data to import VAT entries. Unexplained differences are the most common reason an FTA position hardens.
- Zero-rating and exemption support: export evidence, proof of the recipient’s location for services, and apportionment workings for businesses with exempt supplies.
- Input tax support: supplier verification files under FTA Decision No. 13 of 2026 for purchases from 1 October 2026, and the policies behind employee-cost claims.
- Legal analysis: the legislation, FTA public clarifications and guides relied on, any private clarification received, and expert reports where valuation or transfer pricing is in issue.
Information requests often carry short deadlines and may require Arabic translations. Agree internally who signs off each response, keep a log of everything produced and never provide documents that have not been reviewed. Where corporate tax is in scope, the transfer pricing master file, local file and intercompany agreements will be requested early, so check now that they exist and match what actually happened.
Assessments and the April 2026 penalty reform
After an audit the FTA issues a tax assessment for any tax underpaid and imposes administrative penalties. Under Cabinet Decision No. 129 of 2025 the main amounts are now:
| Breach | Penalty | Comment |
|---|---|---|
| Late payment of tax | 14% a year, calculated monthly on unpaid tax | Replaces the old 2% and 4% monthly penalties |
| Voluntary disclosure before audit notice | 1% a month on the tax difference | Replaces the old fixed percentage scale |
| Voluntary disclosure after audit notice | Fixed 15% plus 1% a month | Disclosure timing has a direct cost |
| Incorrect tax return | AED 500 first time; AED 2,000 repeat | None if corrected by the due date |
| Failure to issue a tax invoice or credit note in time | AED 2,500 per case | Applies to each detected instance |
| Failure to update the FTA tax record | AED 1,000 first time; AED 5,000 repeat within 24 months | Reduced from earlier levels |
Tax evasion is a criminal offence under the Tax Procedures Law and can lead to prosecution alongside administrative penalties. Where an audit suggests deliberate conduct, the strategy changes and privilege and internal investigation protocols become central; see our page on white-collar crime and investigations.
Challenging the outcome: reconsideration, TDRC and court
The dispute route is staged, and each stage is a gateway to the next. The FTA has summarised the procedure: a reconsideration request must be filed within 40 business days of notification; the FTA decides within 40 business days; an objection to the TDRC must be filed within 40 business days of the FTA’s decision and is inadmissible unless reconsideration was sought and the disputed tax paid. TDRC decisions on disputes of AED 100,000 or less are final and enforceable; above that, either side can appeal to the competent federal court within 40 business days.
| Stage | Filing window | Decision period | Payment condition |
|---|---|---|---|
| Review of a tax assessment (optional) | 40 days from notification | Per FTA procedure | Tax remains due |
| Reconsideration by the FTA | 40 days from the decision | 40 days | Tax remains due; late-payment charges accrue |
| Objection to the TDRC | 40 days from the reconsideration decision | 20 days, extendable | Disputed tax must be paid |
| Appeal to the federal court (over AED 100,000) | 40 days from the TDRC decision | No statutory timetable | At least 50% of disputed penalties paid or guaranteed |
If the FTA does not decide a reconsideration request in time, the taxpayer can take the matter to the TDRC. Court proceedings are in Arabic and appeals continue to the Federal Supreme Court. Where representation before the UAE courts is required, we work alongside locally licensed advocates; our commercial litigation page explains onshore procedure.
Refund claims, waivers and instalments
Not every dispute is about tax the FTA says is owed. Refused or delayed refunds follow the same reconsideration and TDRC route. Since 1 January 2026, refund requests and the use of credit balances are limited to five years, and older balances could only be rescued through a transitional application within one year of that date, so by the end of 2026. The FTA can audit such transitional claims within two years of submission, so the evidence must be ready when the claim is filed.
Separately, an FTA committee can consider requests to waive, refund or instalment administrative penalties in defined circumstances. These requests do not cover the tax itself and do not replace a challenge to the assessment, but they can materially reduce the cost of a case where the underlying error was genuine.
The reconsideration request is the case. Committees and courts rarely see better evidence than the taxpayer filed in its first 40 business days, and documents produced late invite the question why they were withheld during the audit. File the full analysis, key documents and a correct tax calculation with the request.
An illustrative scenario
Illustrative only; the business and figures are hypothetical. A Sharjah-based IT services company zero-rates fees charged to its overseas parent. An FTA tax audit UAE team concludes that the services were enjoyed by the parent’s UAE branch and assesses 5% VAT for three years, with late-payment charges.
The company files a reconsideration request within 40 business days with the intra-group agreement, timesheets showing who received the services and evidence that the branch had its own separately invoiced support. The FTA accepts part of the argument. For the remainder the company pays the disputed tax so that its TDRC objection is admissible, and models the cost of an appeal against the amount still in dispute.
In parallel it reviews whether the same facts create a corporate tax or transfer pricing exposure, because positions taken in one dispute can be used in another.
Risks and common mistakes
Missing a business-day deadline
Deadlines run from notification, usually when the decision lands in the EmaraTax account, not when someone reads it. Weekends and public holidays are excluded, so counting errors are common. A missed reconsideration deadline can close the route to the TDRC and the courts.
Assign ownership of the EmaraTax inbox, use a written deadline calculator and file a complete request early.
Filing a thin reconsideration request
Some taxpayers file a holding request intending to develop the case later. The FTA decides on what it receives, and later bodies focus on the arguments and evidence raised from the start.
Treat the request as your full statement of case, with legal analysis, documents and calculations.
Running out of cash for payment conditions
Disputed tax must be paid before a TDRC objection is accepted, and at least half of the disputed penalties must be paid or guaranteed before a court appeal. Late-payment charges keep running at 14% a year.
Model the cash requirement as soon as an assessment is likely, discuss bank guarantees early and consider paying under protest to stop charges accruing.
Treating VAT and corporate tax separately
A finding that a free zone company made mainland supplies, or that a fee was really a dividend, can affect VAT, corporate tax and transfer pricing at once. Statements in a VAT dispute can be used in a later corporate tax audit.
Agree one factual narrative across taxes and periods before any submission.
Ignoring disclosure timing
Under the 2026 penalties, a voluntary disclosure made after an audit notice carries an extra fixed 15%. Waiting to see whether the FTA finds an error is now expensive.
Run periodic health checks and correct errors through the right route before an audit starts.
The cross-border angle
An FTA tax audit UAE finding rarely stays inside the UAE. Many UAE tax disputes have a foreign twin. A UAE adjustment on a management fee may mirror a deduction claimed by a parent in the UK, India, Saudi Arabia or Singapore, and a refusal of zero-rating can turn on where a foreign customer actually used the service. Where a double tax treaty applies, mutual agreement procedures may run alongside domestic remedies.
TRW & Co coordinates UAE strategy with advisers in the relevant countries, including through our offices in London, Singapore and Dhaka, so that positions are consistent in every jurisdiction.
What to do next
- Keep returns, ledgers, customs data and financial statements reconciled every period.
- Run an annual health check on high-risk areas: zero-rating, designated zones, input tax and employee costs. See our articles on input VAT recovery and VAT in free zones and on imports.
- Agree an internal protocol for audit notices: who is notified, who speaks to the FTA and how deadlines are tracked.
- Reconcile EmaraTax credit balances and file transitional refund claims before the end of 2026.
- For corporate tax, check registration and filing history; see corporate tax registration and return deadlines.
- Consider penalty waiver or instalment requests where the facts support them.
Official information is on the Federal Tax Authority website, including its penalty waiver initiative, and on the UAE Government taxation portal. TRW & Co supports clients through every FTA tax audit UAE stage, from the first notice to the TDRC, and works alongside registered tax agents and locally licensed advocates. Contact us at info@trw.co or +971 58 942 1012.
Frequently asked questions
01How far back can the FTA audit?
The general rule under the amended Tax Procedures Law is that the FTA may audit and issue assessments within five years from the end of the relevant tax period. The law lists specific exceptions with longer periods, and the FTA can review refund or credit claims filed late in the five-year window within two years of submission. Keep records for at least the statutory retention periods, which are longer for corporate tax and real estate.
02What are the penalties for late payment of VAT now?
Since 14 April 2026, under Cabinet Decision No. 129 of 2025, unpaid tax attracts a late-payment charge at an annualised rate of 14%, calculated monthly on the outstanding amount. This replaced the previous structure of an immediate 2% penalty followed by monthly 4% penalties. The charge keeps running while a dispute is pending, which is one reason many taxpayers pay disputed tax under protest.
03How do I challenge an FTA decision?
File a reconsideration request with the FTA within 40 business days of being notified, giving reasons and supporting documents. The FTA has 40 business days to decide. If you disagree with its decision, or it does not decide in time, you can object to the Tax Disputes Resolution Committee within 40 business days, after paying the disputed tax. Decisions above AED 100,000 can be appealed to the competent federal court within 40 business days.
04Should I make a voluntary disclosure before an audit?
Often yes. Under the 2026 penalty rules, a disclosure made before an audit notice attracts a monthly 1% penalty on the tax difference, while one made after notice carries an additional fixed 15%. Since 1 January 2026 many errors can instead be corrected in a later return, unless the FTA requires a disclosure. Each case needs analysis of the error, the route and the cost.
05Can the DIFC or ADGM Courts hear tax disputes?
No. Federal taxes are administered by the Federal Tax Authority, and disputes go through FTA reconsideration, the Tax Disputes Resolution Committees and the federal courts, ending at the Federal Supreme Court. This applies even where the taxpayer is established in the DIFC or ADGM. Court proceedings are in Arabic, so translations and Arabic-language submissions should be planned early, and a DIFC or ADGM entity should not assume its own court will have any role in the dispute.
06Can administrative penalties be waived?
In defined circumstances. The Tax Procedures Law allows the FTA, through a committee, to consider requests to waive, refund or pay administrative penalties in instalments, but not the underlying tax. The FTA has also run targeted initiatives, such as waiving the late corporate tax registration penalty for businesses that filed their first return within a set period. A waiver request sits alongside, not instead of, a challenge to the assessment.
Sources and official materials
- Federal Tax Authority — Audits, EmaraTax, guides and dispute procedures
- Federal Tax Authority: Legislation — Tax Procedures Law, amendments and Cabinet Decisions
- FTA: New procedures for reconsideration requests — Reconsideration, TDRC objection and AED 100,000 threshold
- FTA: Waiver of penalties — Penalty waiver initiative
- UAE Government portal: Taxation — Overview of federal taxes
- Ministry of Finance — Tax policy and legislative announcements
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
