VAT – how GCC businesses see it

VAT is a concern for a majority of companies

ERP (Programming) System to account for VAT is understood as the main area of concern.

More than 50% of companies are setting aside more than US$ 25K for getting a VAT enabled system or getting VAT enabled in their current business accounting systemSource: Deloitte: Preparing for VAT in GCC

GCC VAT | Introduction & Implementation considerationsWhat is VAT?

➢ Value Added Tax➢ Tax on consumption of goods & services➢ Also known as Goods & Services Tax (GST) in many

countries (Malaysia, India, Pakistan etc.)➢ Borne by the FINAL CONSUMER➢ Should NOT be the cost of doing business * ➢ Collected incrementally at each stage in the value

addition/ production by the business on behalf of the government

➢ Risks/Concerns:

➢ Regulatory e.g. Penalties & Compliances, Mandatory Acct records

➢ Finance e.g. Un-availed Input Tax Credit goes out of the bottom line

➢ Market e.g. VAT Compliant Sales Invoice

➢ Expected to be implemented w.e.f 1 Jan 2018➢ VAT Framework is ratified by the member states➢ Underlying framework is final and now member states are issuing the VAT

legislation➢ The expected rate ‘most probably’ will be 5%. Few exemptions – i.e.

Financial services and health care being exempt. Countries will issue specific exemptions also like UAE is considering Real Estate first sale to be exempted.

➢ Exports will attract Zero rated VAT➢ Reverse Charge for purchases done outside GCC➢ Federal Law No. 7 of 2017 of Tax Procedures & role of Federal Tax Authority➢ Tax Registration Number➢ Penalties – upto 5 times➢ Refunds ➢ 20 days for appeal

UAE VAT | Introduction & Implementation considerationsIntroduction & Current Status

GCC VAT | Introduction & Implementation considerationsType of supplies – Simple example

Sales 5% Charge on

Sales

VAT recovered

on the purchase

Net VAT Payable

1,000 50 0 50

1,500 75 50 25

2,000 100 75 25

TOTAL VAT PAID BY END CUSTOMER 100

Garment

Manufacturer

Garment

Wholesaler

Garment

Retailer

GCC VAT | Introduction & Implementation considerationsType of supplies – Other Examples

Standard Tax

VAT Charged

VAT Credit Available

VAT @ zero

No VAT Charged

VAT Credit Available

VAT Exempt

No VAT Charged

No VAT Credit Available

Reverse Charge

Purchases from Outside

GCC

Group Tax – Transfer

pricing

GCC VAT | Introduction & Implementation considerationsType of supplies – Other Examples

GCC

COMPANY

Local

Purchases

100

Import of

Services

200

Import of

Goods

300

5% Paid on self

declaration

5% Paid at Customs

point

5% Paid on Invoice

INPUT SIDE OUTPUT SIDE

Local

Sales

800

5% Collected on

Sales Invoice

Export

Sales

100

0% Collected on

Sales Invoice

GCC VAT | Introduction & Implementation considerationsCompliance Environment

Each country will bring out detailed legislation

Self Assessment – Mandatory registration - Turnover

Filing of the periodic VAT return to government - online

VAT is payable by a certain cutoff date

Record Keeping in a VAT environment- Tax Invoice

- 5 – 10 years of record keeping

- Debit or credit notes

- VAT Exempt supplies and Zero rated supplies

Penalties for non-compliance/delays

GCC VAT | Introduction & Implementation considerationsCompliance Environment for YOU

Compliance environment for the target audience

GCC VAT | Introduction & Implementation considerationsImplementation considerations for YOU

Imp

act A

sse

ssm

en

t Project & Organization set up

High Level Impact on transactions

Roles & responsibilities

Training & communication plan

IT Systems requirements

Reporting requirements

Impact on cashflow & mitigation

Implementation Plan De

sig

n &

Im

ple

me

nt Study Legislation

Transaction mapping with rates

Roles & responsibilities

Implement IT Systems or make modifications

Reporting

Op

era

te Registration

Test & review of first return and Payment of VAT

Conclude

2 – 2 weeks 4 – 10 weeks 2 – 2 weeks

GCC VAT | Introduction & Implementation considerationsImpact on transactions & business processes

Sales Order Delivery Sales InvoiceApproved

Receivable

General Ledger

& New VAT

Account

ERP VAT

Return

VAT code is

Auto selected

Obviously Purchase is a mirror of this process…

GCC VAT | Introduction & Implementation considerationsImpact on transactions & business processes

Purchase

OrderDelivery Vendor InvoiceApproved

Payable

General Ledger

& New VAT

Account

ERP VAT

Return

VAT code is

Auto selected

Lets see how Sage can help…..

Recent Releases

2017.0

August

2016

2017.1

December

2017

Sage

CRM

2017 R1

2017.2

April

2017

Sage

CRM

2017 R2

2018.0

August

2017

Sage

CRM

2017 R3

Launching

Today

Target date of VAT compliance module for Sage 300 – Oct 2017 *

Customer Workshops for VAT – Nov 2017