The GCC’s unified agreement for value added tax (VAT) has recently been published (in Arabic only) by the
Saudi Ministry of Finance on their website.
This unified agreement sets out the framework under which VAT can be implemented in each of the
GCC member states. The framework includes agreement on certain matters but still allows member
states discretion on how to treat others.
Once the agreement is ratified, each member state can issue its own local law and implement VAT.
The UAE intends to implement VAT with effect from 1 January 2018 but other states may take another 6 months or so.
The framework paves the way for implementation, for a basic rate of VAT of five percent with certain supplies of goods and services zero rated or VAT exempt. We understand that the Ministry of Finance (MoF) will release the UAE’s law on VAT towards the end of June. This will detail how the UAE will interpret the GCC framework and how it will deal with those matters where it has discretion. These will include whether to treat certain supplies as zero rated or VAT exempt.
The local law will detail conditions for:
VAT deductions,
VAT grouping
Rules for recovering VAT in respect of financial services
Reporting formats
There is no indication of how VAT will apply to free zones.
The MoF has recently been holding a series of public awareness sessions, outlining how they
propose to apply VAT to those areas where the GCC framework allows discretion. The UAE has also
taken steps to set up its own Federal Tax Authority (FTA), which will be responsible for all VAT
matters in the UAE.
The framework provides information to start planning for VAT.
VAT will impact all businesses in the UAE, either directly or indirectly.
So carefully review your systems and review their processes to understand the impact of VAT and to determine what needs to be done to be fully compliant with the new laws.
Do you need to recruit? Train?
Budget for auditors, or consulting support, or system modifications or upgrades?
What contracts are in place beyond 1 January 2018 -how will those be impacted by VAT?
All businesses will be required to maintain extensive and proper books of account because complete, verifiable
documentation will be essential to support a VAT refund claim and avoid penalties for non-compliance.
Accounting systems should be able to identify and record VAT – payable and receivable, – across the entire supply chain. Ensure that your systems will enable you to:
– hold VAT registration ids by trading partner
– hold VAT codes by item fro the relevant tax rate or exemption.
– identify and record rebates,
– exemptions,
– or other special VAT treatments on particular transactions.
– generate commercial documents like invoices or till receipts with VAT shown
– deal with rebate and returns
– create timely, accurate statutory returns
– work with current interfaces.
– product auditable accounts.
We have already received several dozen inquires to assist with this transition, if you need assistance with your business systems to comply with VAT then please contact us in good time – year end is a holiday season and also a busy time for new system go live, and for financial audit preparation.
