FTA Corporate Tax Audits in 2025–2026: What Dubai Businesses Are Being Scrutinized For

The UAE's corporate tax landscape has entered a new chapter — and it is one defined by enforcement, not just education. The Federal Tax Authority has significantly scaled its inspection and audit capabilities, powered by advanced digital tools and a clearly data-driven selection process. For businesses operating in Dubai and across the UAE, this is not background noise. It is a direct signal that FTA corporate tax audits are now a strategic business reality — not a distant possibility.

If your company has not yet evaluated its audit exposure, now is the time. As a trusted audit and accounting firm in Dubai, UAE, NR Doshi & Partners breaks down precisely what the FTA is scrutinizing, what triggers an audit, and how to protect your business before an official notice arrives.

Understanding What an FTA Corporate Tax Audit Actually Involves

An FTA corporate tax audit is a formal, structured review of your business's tax filings, financial records, related-party transactions, and supporting documentation. Unlike VAT audits, corporate tax audits focus deeply on substance, judgement, rationale, and intent — not just the numbers on your return. This distinction matters enormously. Even if your financial figures appear correct on the surface, the FTA will assess whether the underlying business decisions, expense classifications, and transaction structures hold up under scrutiny.

An audit may target a single tax return or span multiple financial years. It might focus on one specific issue — such as a large loss claim or an exemption declaration — or it may examine your overall operations comprehensively. Importantly, audits are not limited to large corporations. SMEs, holding structures, and free zone entities in Dubai are all within the FTA's active review scope in 2025–2026.

The Four Areas the FTA Is Scrutinizing Most Closely in 2025–2026

1. Non-Deductible Expenses Misclassified as Business Costs

One of the most common triggers in corporate tax audits is the improper treatment of expenses. The FTA is actively reviewing expense classifications — particularly entertainment costs, fines, penalties, provisions without sufficient justification, and personal expenses that have been recorded in the profit and loss statement as legitimate business expenditure.

Many businesses — particularly those transitioning from years of no federal corporate tax — have historically blended personal and business costs without a structured review mechanism. Under the UAE Corporate Tax Law, the FTA expects a clear and documented rationale for every deduction claimed. If your expense ledger cannot withstand that level of scrutiny, your business carries measurable audit exposure.

Proper bookkeeping and regular reconciliation by a qualified accounting firm in Dubai, UAE are no longer optional — they are frontline compliance tools. NR Doshi & Partners provides Accounting and Bookkeeping Services in Dubai that ensure your records are structured, IFRS-aligned, and audit-ready at every financial period close.

2. Transfer Pricing Gaps and Arm's Length Compliance

Transfer pricing (TP) has rapidly become one of the FTA's most active audit focus areas, and for good reason. The FTA's TP rules under Articles 34–36 of the UAE Corporate Tax Law and Ministerial Decision No. 97 of 2023 now require that all related-party and connected-person transactions adhere strictly to the arm's length principle, supported by contemporaneous documentation.

A mandatory TP framework must be current and no older than three years. A comprehensive benchmarking study must confirm arm's-length margins using recognised OECD methods. Critically, all TP adjustments must be integrated into audited financials before the audit report is finalised. Retrospective changes post-audit are not permitted, and downward adjustments that reduce taxable income require prior FTA approval.

For businesses with intercompany transactions, intra-group service agreements, or cross-border related-party dealings, working with an experienced audit and accounting firm in Dubai, UAE that understands both local FTA requirements and OECD TP guidelines is not just advisable — it is essential. NR Doshi & Partners' Transfer Pricing Services in UAE provides deeper guidance on documentation thresholds, benchmarking requirements, and Master File/Local File preparation.

3. Free Zone Tax Status and QFZP Eligibility

Free zone businesses have historically operated under the assumption that their 0% tax status is automatic and indefinitely secure. The FTA is now actively testing that assumption through structured review of Qualifying Free Zone Person (QFZP) declarations.

To maintain QFZP status and benefit from the 0% corporate tax rate, businesses must meet a specific set of conditions — including conducting qualifying activities, not conducting business with UAE mainland entities beyond permitted limits, and maintaining adequate economic substance within the free zone. All free zone companies must register for corporate tax with the FTA, maintain transparent accounting records, and submit annual corporate tax returns — even if profits fall below the taxable threshold.

Failure to demonstrate ongoing QFZP compliance is one of the fastest ways to lose preferential tax treatment and face retroactive tax liabilities. NR Doshi & Partners' Corporate Tax Services in Dubai outlines what documentation Qualifying Free Zone Persons must maintain to protect their status through every audit cycle.

4. Missing or Inadequate Documentation

If your corporate tax return reports significantly lower income than your VAT return, or if your year-on-year figures fluctuate without a clear explanation, it raises an immediate red flag with the FTA. But inconsistency in figures is only one documentation risk. The broader issue is businesses that lack the foundational records to substantiate any part of their tax position when formally requested.

Businesses must maintain sufficient documentation to support VAT, corporate tax, and audit queries — with accounting policies on revenue recognition, provisioning, and depreciation documented and consistently applied across periods and entities. Records must be retained for a minimum of seven years under standard FTA rules, and in certain cases up to fifteen years.

The upcoming introduction of e-invoicing in the UAE will require businesses to issue, store, and report invoices electronically, enabling the FTA to access transaction data in real time. This will make it significantly easier to reconcile VAT and corporate tax filings and quickly identify discrepancies. Businesses not already building systems for structured, audit-ready record-keeping are falling behind the compliance curve.

What Triggers an FTA Corporate Tax Audit in 2025?

While the FTA does not publicly disclose its full audit selection algorithm, patterns are becoming clear from industry observation. Businesses with revenue over AED 50 million, free zone entities, high-risk industries, and cases with irregular tax filings or discrepancies between reported figures are all common audit selection criteria.

Beyond data thresholds, sharp fluctuations in revenue or expenses year-on-year without a clear declaration may initiate an FTA audit to verify the accuracy of filings. The FTA also reviews whistleblower submissions, which means third-party reports can initiate an audit even where no internal red flags exist.

NR Doshi & Partners has published a detailed guide on FTA Tax Audit Procedures in the UAE covering the formal audit timeline, your rights as a taxpayer, objection procedures, and how to structure your initial response to an FTA audit notification.

The New Penalty Regime: Higher Stakes Starting April 2026

Any discussion of FTA audit readiness must account for the evolving penalty structure. Cabinet Decision No. 129 of 2025 introduced significant changes to the UAE penalty framework, effective April 14, 2026. The new regime simplifies the penalty structure, encourages voluntary compliance, and ensures consistency across different taxes.

The key shift is from punitive flat penalties to a 14% annualised late-payment model, with reduced fixed penalties for FTA-discovered errors. However, the window for voluntary disclosure remains the most cost-effective route to correction — and it is only available before the FTA initiates a formal audit.

NR Doshi & Partners' VAT Consultancy and Tax Compliance Services covers voluntary disclosure structuring, penalty mitigation strategies, and how businesses can use the April 2026 transition period strategically to resolve past filing gaps before the new regime locks in higher enforcement stakes.

How to Stay Audit-Ready: A Practical Framework

Staying audit-ready is not a one-time exercise. It is a continuous process built on four foundational pillars.

Accurate and IFRS-aligned financial statements. All corporate tax filers must now link their financials directly to their tax return and transfer pricing obligations. For tax groups, audited aggregated financial statements must be prepared using IFRS or IFRS for SMEs, eliminating intra-group transactions and reported in AED — mandatory from January 2025 onwards. NR Doshi & Partners' Audit and Assurance Services in Dubai ensures your financial statements meet both IFRS standards and FTA audit requirements simultaneously.

Proactive internal audit health checks. Do not wait for an FTA notice to examine your books. Conduct periodic mock audits, reconcile ledgers against filed returns, and identify discrepancies before they are flagged externally. Our Internal Audit Services in Dubai are designed specifically to mirror the FTA's review methodology so your business knows exactly where it stands before any official engagement.

Transfer pricing documentation that is current, complete, and benchmark-verified. Your TP documentation should never be more than three years old. If you have had changes in ownership structure, new intercompany agreements, or new free zone licences, your TP study must be updated accordingly before your next filing period.

A single point of contact for FTA communication. Submitting all requested documents, reconciliations, and explanations in your initial FTA response — in a complete and well-organised manner — not only demonstrates taxpayer readiness but also reduces the likelihood of follow-up queries and physical site visits.

Why Dubai Businesses Choose NR Doshi & Partners

The complexity of FTA corporate tax audits in 2025–2026 demands more than a bookkeeper or a generic tax consultant. It requires an audit and accounting firm in Dubai, UAE that operates at the intersection of IFRS reporting standards, UAE corporate tax law, FTA procedural requirements, and transfer pricing regulations — simultaneously.

NR Doshi & Partners brings registered tax agent expertise, IFRS-aligned audit capability, and sector-specific compliance knowledge to every client engagement. Whether you are a free zone entity protecting your QFZP status, a mainland business preparing your first corporate tax audit defence file, or a multinational navigating UAE transfer pricing obligations, we provide the structured, evidence-based support that turns audit risk into audit readiness.

With decades of experience as a leading audit and accounting firm in Dubai, UAE, NR Doshi & Partners is the partner businesses trust when compliance stakes are at their highest.

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