The logistics industry in UAE is expected to cross AED 660 billion in 2030. Abu Dhabi, Sharjah, and Dubai are all thriving hubs for logistics businesses. However, logistics companies are facing higher audit scrutiny because of evolving supply chain regulations surrounding ESG (Environmental, Social, Governance).
Understanding UAE logistics audit risks is essential, especially with the introduction of corporate tax in the country. Customs duties and transfer pricing are also areas that are getting a closer look, particularly for companies involved in cross-border trade.
What Are Logistics Audit Risks in UAE?
Logistics audit risks are areas where a company might make mistakes or fail to follow rules, which can lead to problems during an audit. These are the main types of audit risks for logistics companies:
- Financial risk: Your company can face financial audit risks if your financial statements are recorded incorrectly. Without proper internal controls, these errors can go unnoticed and can even lead to penalties during an audit.
- Compliance risk: Following customs, VAT, and ESG rules help keep your business running smoothly. If you don’t follow these rules, you might be fined or face delays in shipping your products.
- Operational risk: You depend on smooth supply chain processes, but problems with tracking shipments, managing inventory, or keeping records can cause big audit problems. These issues can also lead to money and legal troubles.
- Tax risk: Now that the UAE has corporate tax, you must report all income and expenses correctly. If you make mistakes on your tax returns, your business could be in tro
Audit Risks in the UAE
- Incorrect customs declarations: If you give wrong or incomplete customs papers, your goods could be delayed or stopped, and you might have to pay fines.
- VAT mistakes: If you make mistakes in how you handle VAT on shipping or international services, you could be audited and fined by the tax authorities.
- Transfer pricing: If your company trades with related businesses in other countries, you need to explain your prices. Without proper proof, the authorities might question your deals.
Why Logistics Companies Are Often Audited
Logistics compliance in UAE is becoming a key focus for business owners as logistics companies handle thousands of transactions every year. These some common mistakes that companies can make:
- Missing freight charges in your accounts can put you at risk for an audit.
- Submitting incorrect customs paperwork can cause shipping delays and attract customs checks.
- Working with multiple vendors increases the risk of forgetting to record some costs.
Customs Compliance Audit Risks in UAE Logistics
Customs is one of the most common areas for logistics company tax audit in UAE.
- Misdeclared goods: If you say your goods are a different type or amount than what they really are, it can cause problems during an audit.
- Free zone vs mainland compliance issues: The rules for moving goods between free zones and the mainland in the UAE are different.
- Undervaluation or overvaluation: When you put the wrong value on your goods, either too low to pay less duty or too high by mistake, it’s risky.
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Fleet Management Audit Risks in Logistics Companies
If you run a logistics business, auditors will look closely at how you manage your vehicles. These are some risks that can trigger an audit:
- Fuel misuse: Drivers may overreport consumption or use fuel for personal trips.
- Ghost trips: Vehicles recorded as moving when no real delivery happened.
- Poor asset use: Trucks or vans sitting idle instead of being fully used.
- Maintenance gaps: Missing service records can lead to breakdowns or safety issues.
- Legal requirements: Vehicles not properly registered, insured, or inspected.
Transfer Pricing Risks in UAE Logistics
If your logistics company is part of a larger group, you probably deal with related companies across borders. The tax authority reviews these transactions under transfer pricing rules.
- Service charges between group companies: The charges may be seen as too high or too low, which can raise concerns about fair pricing and compliance with transfer pricing rules.
- Benchmarking problems: Your intercompany pricing may not align with industry standards.
- Incomplete paperwork: Missing documents like intercompany agreements or transfer pricing reports can cause compliance issues and weaken your audit readiness.
Building Tax Audit Readiness for Logistics Firms in UAE
Being ready for a tax audit is not only about avoiding penalties. It’s about proving that your business runs cleanly and professionally. These are some of the things you can do:
- Keep your records in order: Contracts, invoices, customs papers, and fleet logs should be easy to find.
- Do regular internal reviews: Check your books, fleet costs, and customs filings before an auditor does.
- Train your staff: Make sure your accounting, operations, and fleet teams understand their roles in keeping records accurate.
- Use technology: GPS tracking, accounting software, and digital customs records reduce errors and make audits faster.
- Run a mock audit: Get an internal or external auditor to check your systems before the tax authority does.
Audit Checklist for UAE Logistics Firms
Here’s a simple checklist you can use to stay on top of audit risks:
Customs
- Are goods declared with correct values and codes?
- Do you have proper documents for all shipments?
- Are third-party customs agents monitored?
Fleet
- Do you track fuel usage and mileage for each vehicle?
- Are service and maintenance records complete?
- Is every vehicle licensed, insured, and compliant with UAE standards?
Transfer Pricing
- Do you have intercompany agreements in writing?
- Have you prepared a transfer pricing local file and disclosure form if required?
- Are your charges between group companies consistent with market prices?
General Tax Readiness
- Are financial records updated and reconciled regularly?
- Do you run internal audits or health checks?
Is staff trained on customs, VAT, and tax compliance basics?
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A&A Associate offers expert audit services in UAE for clients all across the country. Our auditors are skilled in both internal and external audits, and can conduct a thorough, independent review of your books and business operations. Get in touch for a free consultation!
