Introduction

Over the last two decades, the United Arab Emirates has introduced various strategic initiatives aimed at strengthening governance structures, promoting economic diversification, and improving the effectiveness of public institutions. Some of the significant strategic initiatives during this period include:

• 2007: Launch of the UAE Government’s national strategy.
• 2008: Announcement of the Government Performance System.
• 2011: Launch of UAE Vision 2021
• 2014: Launch of the National Agenda in support of implementation of UAE Vision 2021.
• 2016: Establishment of executive teams for implementing the National Agenda.
• 2017: Launch of the “UAE Centennial 2071” programme.
• 2018: Implementation of Value Added Tax (VAT).
• 2020: Introduction of the “Preparing for the Next 50 Years”
• 2022: Announcement of the “We Are the UAE 2031”
• 2023: Introduction of Corporate Tax, establishing a federal direct tax regime applicable to businesses.

Among these initiatives, the launch of VAT in 2018 and the Corporate Tax in 2023 represent particularly important milestones, as they have majorly reshaped the UAE’s fiscal structure and created a more structured compliance environment for businesses.

Over the past decade, these developments have contributed to a remarkable transformation in the UAE’s regulatory and fiscal framework. The introduction of VAT and the subsequent implementation of Corporate Tax effective from 1 June 2023 have gradually shifted the UAE from a low-tax jurisdiction to a compliance-oriented environment. Consequently, businesses are now expected to maintain stronger internal control systems, ensure accurate financial reporting, and implement robust compliance mechanisms to meet regulatory expectations and probable scrutiny from the Federal Tax Authority (FTA).

Within this evolving landscape, the role of internal audit has expanded considerably. It is no longer confined to traditional oversight of financial records but has become a critical component of tax governance, risk management, regulatory compliance, and strategic decision-making within organisations. An effective internal audit framework should therefore evaluate the adequacy and effectiveness of systems designed to detect counterfeit activities, review the reliability of reporting mechanisms, and assess the effectiveness of employee training programmes.

In addition, internal audit should examine the efficiency and effectiveness of organisations in addressing customer complaints. This includes reviewing the turnaround time for resolving complaints and analysing cases where complaints remain unresolved beyond the prescribed timelines, with the objective of identifying the underlying causes of such delays and recommending appropriate improvements.

 

From Traditional Assurance to Strategic Risk Management

Traditionally, internal audit functions primarily focused on reviewing financial controls, accuracy, compliance and detecting irregularities. However, in the modern UAE tax environment, internal audit now performs a far broader role.

In the contemporary UAE business environment, organisations increasingly require internal audit functions that demonstrate agility, strategic awareness, and forward-looking insight. By 2026, it is expected that more than 65% of Chief Audit Executives in the UAE will allocate over 40% of their audit plans to forward-looking and advisory activities.

Rather than functioning as a retrospective control mechanism, internal audit has evolved into a forward-looking governance function that anticipates regulatory risks and enhance organisational resilience.

 

Importance of Internal Audit for Tax Compliance

Internal audit functions extend far beyond routine financial verification; they serve as a proactive mechanism for identifying risks and strengthening organisational processes. In the context of Corporate Tax and VAT, internal audits contribute to compliance in several ways.

• Internal auditors review tax procedures to ensure that critical processes such as VAT return filings, reconciliation of input and output VAT, and the computation of Corporate Tax liabilities are carried out accurately and in accordance with applicable regulatory requirements.
• They also examine the adequacy and reliability of supporting documentation, including tax invoices, expense records, contracts, and financial statements that underpin tax filings and regulatory reporting.
• Another key function of internal audit is the early identification of errors, inconsistencies, or misstatements within financial and tax records. Detecting such issues at an early stage allows organisations to implement corrective measures before they escalate into regulatory audits, financial penalties, or reputational risks.
• Internal auditors further assess whether tax policies and procedures established by the organisation are being consistently implemented across departments.

 

Internal Audit and Corporate Tax

With the implementation of Corporate Tax in the UAE, the responsibilities of internal audit functions have increased considerably. Internal auditors are more involved in :

• reviewing the computation of taxable income
• examining the application of available exemptions and reliefs
• evaluating the structure of group entities for tax purposes.
• assessing compliance with transfer pricing requirements
• ensure that financial reporting aligns with applicable accounting standards, including International Financial Reporting Standards (IFRS) and local regulatory requirements.

Through these reviews, internal audit functions assist organisations in preparing for corporate tax filings and potential regulatory examinations by the Federal Tax Authority.

 

Internal Audit and VAT

In relation to VAT, internal audit function focus on ensuring that VAT obligations are fulfilled accurately and timely which includes :

• evaluating the preparation and submission of VAT returns
• reconciling VAT ledgers with accounting records,
• upholding the legitimacy of input tax claims.
• check the correct tax treatment of various supplies, including zero-rated and exempt transactions, and
• reviewing the VAT implications of intercompany and cross-border arrangements.

By conducting such reviews, internal audit functions help ensure that VAT positions adopted by the organisation are in line with regulatory requirements and documentation.

 

Conclusion

In this advancing landscape, the role of internal audit has expanded beyond traditional financial review to become a key element of tax governance, risk management, and regulatory compliance. Internal audit functions help organisations to review tax procedures, corroborate documentation, discover discrepancies early, and ensure adherence to VAT and corporate tax requirements.

Overall, internal audit now serves as a strategic governance function, enabling organisations to enhance compliance, diminish regulatory risks, and support informed decision-making.

 

About the author:

Rajat Mohan an alumnus of IIM Ahmedabad, and is Managing Partner at AMRG Global. AMRG Global is premier tax consulting and advisory firm operating across the Middle East and North India. Rajat specialises in tax litigation, indirect taxation, and strategic tax advisory for multinational and domestic enterprises.