The FTA has now been auditing UAE businesses for more than six years, and certain errors come up again and again. Avoiding them is the cheapest form of tax planning there is.
1. Wrong VAT treatment of designated zones
Designated zones (such as JAFZA, DAFZA, Hamriyah, KIZAD) are treated as outside the UAE for goods, but inside the UAE for services. Many businesses assume "free zone = no VAT" and get this wrong.
2. Forgetting the reverse charge on imported services
If you buy software, advertising or consultancy from a foreign supplier, you must self-account for VAT under the reverse charge mechanism. It's a paper entry that nets to zero, but failing to declare it is a reportable error.
3. Issuing invoices in foreign currency without conversion
Tax invoices must show the VAT amount in AED, converted using the exchange rate published by the UAE Central Bank on the date of supply. Using your bank's rate or month-end rate is non-compliant.
4. Charging VAT on disbursements vs reimbursements
A genuine disbursement (e.g. a court fee paid on the client's behalf) is outside the scope of VAT. A reimbursement (e.g. travel costs you incurred while delivering the service) is part of your supply and attracts 5%. Mixing the two is one of the most common audit findings.
5. Recovering input VAT on blocked items
You cannot recover VAT on entertainment provided to non-employees, on motor vehicles available for personal use, or on goods used for non-business purposes.
6. Late issuance of tax invoices
The 14-day rule from the date of supply is strict. Issuing the invoice when payment is received — common in service businesses — can leave you exposed.
7. Wrong place of supply for digital services to consumers
Selling to UAE consumers through your website? Place of supply is the UAE and you must charge 5%. Selling to a registered UAE business? It depends on whether the customer provides their TRN.
8. Not adjusting input VAT on bad debts
If a customer hasn't paid for more than 6 months and you've written off the debt, you can recover the output VAT you previously declared. Most SMEs forget this.
9. Ignoring the Capital Assets Scheme
For assets above AED 5m (buildings) or AED 1m (other), you must monitor and adjust input VAT recovery for 10 or 5 years respectively if the use changes.
10. Not keeping records for 5 years
Or 15 years for real-estate-related documents. Cloud accounting helps, but you also need backups of contracts, customs entries, and bank statements.
If you're unsure about any of these, run a quick internal review before the FTA does it for you. The cost of a one-day health-check is a fraction of a single penalty.
