GULF CONSULT VAT Team on
FTA VAT Audits in 2026: Areas Under Scrutiny, Common Findings and the New Penalty Regime
How FTA VAT audits work in 2026, the areas reviewers test first, and how the April 2026 penalty rules and new input VAT powers change the stakes.
Two 2026 changes have raised the stakes of a VAT audit. The amended VAT Law, in force since 1 January 2026, lets the FTA deny input VAT linked to tax evasion. And since 14 April 2026, Cabinet Decision No. 129 of 2025 charges many penalties monthly, so an error found late costs more.
How an FTA Audit Works
The FTA gives notice before an audit, asks for records for the periods under review, and may visit the business. At the end, it issues a tax assessment for any tax underpaid, with penalties. Once an audit has been notified, a voluntary disclosure carries an extra fixed charge, so the time to find errors is before the notice arrives.
Areas Reviewers Test First
In our experience, reviews concentrate on areas where errors are frequent and large:
- Input VAT recovery, especially blocked expenses and invoices that do not meet the requirements
- Zero-rated exports and the evidence behind them
- Reverse charge on imports of goods and services
- Reconciliation of VAT returns to the financial statements and corporate tax return
- Large refund claims
The Penalty Regime
Under the April 2026 rules, a voluntary disclosure before an audit notice costs 1% of the tax difference per month from the original due date. After a notice, a fixed 15% is added. Late payment runs at 14% a year, calculated monthly.
How to Prepare
Reconcile every return to the ledger, keep supplier due diligence on file to protect input VAT, and run a health check on your highest-risk areas. Disclose any errors you find before the FTA asks.
Frequently Asked Questions
How does the FTA choose businesses for a VAT audit?
The FTA uses risk-based selection. Large refund claims, mismatches between VAT and corporate tax returns, and unusual patterns in returns are common triggers.
Can the FTA deny input VAT in 2026?
Yes. Since 1 January 2026, the FTA can deny input VAT where a transaction is linked to tax evasion and the business knew or should have known.
Can I still make a voluntary disclosure after an audit notice?
Yes, but a fixed 15% of the tax difference is added to the monthly penalty, so disclosing before a notice is much cheaper.
Sources
- PwC: Revised administrative penalty framework for violation of tax laws
- Ministry of Finance: VAT law amendments starting January 2026
This article is general information, not advice for your situation. Rules change; check the current position or speak to an advisor before acting.
Need help with this? See our VAT & Compliance Services.
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