VALUE ADDED TAX (VAT) Are You Ready? 23 August 2017 0 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
AGENDA 1. Understanding of VAT 2. VAT – How it Works 3. VAT Basics and Terminologies 4. Progress so Far 5. Expected Next Steps 6. Compliance Requirement 7. Generic Impact Areas and Challenges 8. VAT Impact on ERP Systems 9. Typical IT Implementation Issues 10. Readiness Requirement 11.Questions?
UNDERSTANDING OF VAT 2 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
UNDERSTANDING OF VAT – GLOBAL PERSPECTIVE Following is brief on VAT and the global framework adopted. B A S I C F R A M E W O R K Indirect tax Deductions of applicable on VAT would be consumption of with some goods or exceptions services Currently present in more than One of the most 150 countries Concept of Zero Businesses will common types of Rate Supply & have to charge consumption tax Exempt Supply VAT on supplies found around the relevant to made world examine VAT shall be May apply on Charged at charged with imports in each step of eligibility to claim addition to off-set of input the ‘supply existing taxes paid chain’ Customs duty 3 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT – HOW IT WORKS 4 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT – HOW IT WORKS HOW VAT WORKS? #1 : Collects AED 1 as VAT VAT Deposited to Govt. AED 2.5 Net VAT to Government = AED 1 GOVERNMENT #2 Supplier of services #2 : Collects AED 2.5 VAT Net VAT to Government = AED 2.5 VAT Deposited to Govt. AED 1 #3 : Pays AED 0.5 VAT; Collects AED 4 VAT from customer Net VAT to Government = AED 0.5 #4 : Pays AED 4 VAT [total of VAT # 1+2+3 (to the #4 CUSTOMER #1 Supplier of goods extent of AED 0.5] 5 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT BASICS & TERMINOLOGIES 6 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT IMPACT – TAXABLE SUPPLY Synopsis Output tax @5% Input VAT – ‘Creditable’ Net impact – Tax on ‘Value Addition’ Illustration: Value: 150 • Value: 200 Procurement Output services Input VAT: 7.5 • Output VAT: 10 Customers An Organization Analysis: Cost of procurement Amount Cash outflow / refund Amount Cost to Customer Amount Value of procurement 150 Total Output Liability 10 Value of service 200 Add: Non-creditable VAT 0 Input VAT (creditable) 7.5 Add: Output VAT @ 5% 10 Total cost 150 VAT outflow in cash 2.5 Total cost to customer 210 7 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT IMPACT – ZERO/ NIL RATED SUPPLY Synopsis Output tax @ 0% Input VAT – ‘Creditable’ Net impact – No VAT Illustration: Value: 150 • Value: 200 Procurement Output services Input VAT: 7.5 • Output VAT: 0 Customers An Organization Analysis: Cost of procurement Amount Cash outflow / refund Amount Cost to Customer Amount Value of procurement 150 Value of service 200 Total Output Liability 0 Add: Non-creditable VAT 0 Input VAT (creditable) 7.5 Add: Output VAT @ 5% 0 Total cost 150 VAT Refund 7.5 Total cost to customer 200 8 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT IMPACT – EXEMPT SUPPLY Synopsis Output VAT – No Input VAT – Non- Net impact – Blocked VAT chargeable creditable credit Illustration: Value: 150 • Value: 200 Procurement Output services Input VAT: 7.5 • Output VAT: 0 Customers An Organization Analysis: Cost of procurement Amount Cash outflow / refund Amount Cost to Customer Amount Value of procurement 150 Total Output Liability 0 Value of service 207.5 Add: Non-creditable VAT 7.5 Input VAT (creditable) 0 Add: Output VAT @ 5% 0 Total cost 157.5 Cash outflow / Refund 0 Total cost to customer 207.5 9 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT OVERVIEW & IMPACT ON BUSINESS FUNCTIONS OVERVIEW 5% VAT Tax charged at each step of supply chain and GCC Financial paid by the customer. Legal & Charged as a (%) on Accounting & price of goods & compliance Reporting services. VAT zero rate / exemption include health, education, basic foods, etc. VAT Impact on Procurement 01 January 2018 various IT systems and Anticipated Implementation Date business Manufacturing • Common VAT framework will form domains the basis for the introduction of domestic VAT Law by each member State; Inventory Sales & • VAT would have a direct impact on Management & Distribution nearly all business operations; Logistics • it would also have an significant bearing on the support and administrative functions which are as follows: 10 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
PROGRESS SO FAR 11 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VALUE ADDED TAX P r o g r e s s s o f a r P r o g r e s s s o f a r August 2017 July 2017 March - The FTA, UAE and MoF in VAT MoF, UAE released cooperation with institutions KSA – KSA – VAT May 2017 Framework updated FAQs in the and government authorities VAT Law Regulations public domain; such as ‘Chamber of Ministry of Finance Commerce launched (MoF), UAE MoF, UAE issues Tax second phase of conducted workshops Procedure Law as awareness workshop on and awareness foundation for planned VAT and excise tax sessions UAE taxation treatment July 2017 Nov 2016 May 2017 KSA issues its draft GCC member KSA released its VAT Implementing countries ratify the draft VAT Law for Regulations for VAT Framework for public consultation public consultation the whole GCC Updated FAQ; Awareness VAT Awareness region Workshop – Phase II session for business UAE – Federal sector and relevant Law No. (7) of stake holders 2017 on Tax Participation of around Procedures 15000 Companies 12 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
EXPECTED NEXT STEPS The UAE’s tax official said the excise tax law will be signed by the government in the third quarter, while its regulations will be released in the following quarter. Implementing VAT Roll Out Regulation to Draft VAT 01 January Law – Q3 follow the 2018 Draft VAT Law 1 2 3 4 5 He also said the law regarding the new value-added tax (VAT) will also Registration – be signed in the third quarter and its Excise Tax Mid September regulatory framework will be Implementat 2017 released in the fourth quarter. ion by Q4 "We are starting with Saudi Arabia 350,000 firms and the UAE in January and the expected to rest could implement until the end register of 2018," he said. Source : https://www.zawya.com/mena/en/story/Excise_Tax_UAE_to_implement_tax_on_tobacco_and_energy_drinks_this_year-ZAWYA20170816052646/ 13 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
COMPLIANCE REQUIREMENT 14 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT – LIKELY COMPLIANCE REQUIREMENTS – UAE COMPLIANCE REQUIREMENTS CHECKLIST Registration Group Registration Option for Voluntary likely to begin likely to be Registration Available from End of permissible September 2017 4 2 6 1 7 5 3 One Registration Threshold limit Every person Penal likely to set at for one entity exceeding Consequences if within Member AED 375,000 Threshold liable to register state Turnover limit but not registered to Compulsory Register 15 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
VAT – LIKELY COMPLIANCE REQUIREMENTS – UAE PAYMENT OF TAXES & FILING OF RETURNS Filing of Return also Non-compliance Payment of Tax is net of mandatory for disclosure may lead to Penal output less input of procurement and implications Supply transactions, Emirate- wise 4 2 6 1 7 5 3 Likely Tax period There could be Every taxable Payment & Return refund scenario to be 3 months person liable to Filing likely to be on or less as well pay taxes due E-Platform (Arabic ?) at end of Tax period 16 CONFIDENTIAL – This document is for your organization’s internal use only and should not be copied or distributed to any third party.
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