Documenting Deductions
Required Documentation
To support deductible expenses, the following must be maintained:
- Invoices — valid tax invoices or commercial invoices
- Contracts — agreements supporting the expense
- Payment proof — bank statements, payment vouchers
- Business purpose — evidence the expense was for business
Record Retention
Records must be retained for 7 years following the end of the relevant tax period.
Transfer Pricing Documentation
For related-party transactions above the de minimis threshold:
- Master file and local file (for large entities)
- Transfer pricing study supporting arm's length pricing
FTA Audit
During an FTA audit, the burden of proof is on the taxpayer to demonstrate that expenses are deductible. Inadequate documentation can result in disallowed deductions and penalties.