VALUE ADDED TAX (VAT) Are You Ready? 23 August 2017 0 - - PowerPoint PPT Presentation
VALUE ADDED TAX (VAT) Are You Ready? 23 August 2017 0 CONFIDENTIAL This document is for your organizations internal use only and should not be copied or distributed to any third party. AGENDA 1. Understanding of VAT 2. VAT How it
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11.Questions?
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Following is brief on VAT and the global framework adopted.
Indirect tax applicable on consumption of goods or services Businesses will have to charge VAT on supplies made VAT shall be charged with eligibility to claim
taxes paid One of the most common types of consumption tax found around the world
Deductions of VAT would be with some exceptions
Concept of Zero Rate Supply & Exempt Supply relevant to examine
Charged at each step of the ‘supply chain’
May apply on imports in addition to existing Customs duty
Currently present in more than 150 countries
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#1 : Collects AED 1 as VAT Net VAT to Government = AED 1
HOW VAT WORKS?
GOVERNMENT
#4 CUSTOMER #2 Supplier of services VAT Deposited to
VAT Deposited to Govt. AED 2.5
#1 Supplier of goods
#2 : Collects AED 2.5 VAT Net VAT to Government = AED 2.5 #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
extent of AED 0.5]
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Value: 150 Input VAT: 7.5
Synopsis Illustration:
Procurement
Output services
Cash outflow / refund Amount Total Output Liability 10 Input VAT (creditable) 7.5 VAT outflow in cash 2.5 Cost of procurement Amount Value of procurement 150 Add: Non-creditable VAT Total cost 150 Cost to Customer Amount Value of service 200 Add: Output VAT @ 5% 10 Total cost to customer 210
Analysis:
Output tax @5% Input VAT – ‘Creditable’ Net impact – Tax on ‘Value Addition’
Customers An Organization
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Value: 150 Input VAT: 7.5
Synopsis Illustration:
Procurement
Output services
Cost of procurement Amount Value of procurement 150 Add: Non-creditable VAT Total cost 150 Cost to Customer Amount Value of service 200 Add: Output VAT @ 5% Total cost to customer 200
Analysis:
Cash outflow / refund Amount Total Output Liability Input VAT (creditable) 7.5 VAT Refund 7.5
Output tax @ 0% Input VAT – ‘Creditable’ Net impact – No VAT
Customers An Organization
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Value: 150 Input VAT: 7.5
Synopsis Customers
Procurement
Output services
Cost of procurement Amount Value of procurement 150 Add: Non-creditable VAT 7.5 Total cost 157.5 Cost to Customer Amount Value of service 207.5 Add: Output VAT @ 5% Total cost to customer 207.5
Analysis:
Cash outflow / refund Amount Total Output Liability Input VAT (creditable) Cash outflow / Refund
An Organization Illustration:
Output VAT – No VAT chargeable Input VAT – Non- creditable Net impact – Blocked credit
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the basis for the introduction of domestic VAT Law by each member State;
nearly all business operations;
bearing on the support and administrative functions which are as follows:
step of supply chain and paid by the customer.
price of goods & services.
exemption include health, education, basic foods, etc.
OVERVIEW
01 January 2018 Anticipated Implementation Date VAT Impact on various business domains Financial Accounting & Reporting Procurement and Manufacturing Inventory Management & Logistics Legal & compliance IT systems Sales & Distribution
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Ministry of Finance (MoF), UAE conducted workshops and awareness sessions VAT Awareness session for business sector and relevant stake holders Participation of around 15000 Companies
KSA – VAT Law KSA released its draft VAT Law for public consultation
GCC member countries ratify the VAT Framework for the whole GCC region VAT Framework Updated FAQ; UAE – Federal Law No. (7) of 2017 on Tax Procedures
MoF, UAE released updated FAQs in the public domain; MoF, UAE issues Tax Procedure Law as foundation for planned UAE taxation
KSA – VAT Regulations KSA issues its draft VAT Implementing Regulations for public consultation
The FTA, UAE and MoF in cooperation with institutions and government authorities such as ‘Chamber of Commerce launched second phase of awareness workshop on VAT and excise tax treatment Awareness Workshop – Phase II
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He also said the law regarding the new value-added tax (VAT) will also be signed in the third quarter and its regulatory framework will be released in the fourth quarter. "We are starting with Saudi Arabia and the UAE in January and the rest could implement until the end
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.
Draft VAT Law – Q3
Registration – Mid September 2017 350,000 firms expected to register
Implementing Regulation to follow the Draft VAT Law
Excise Tax Implementat ion by Q4
VAT Roll Out 01 January 2018
Source : https://www.zawya.com/mena/en/story/Excise_Tax_UAE_to_implement_tax_on_tobacco_and_energy_drinks_this_year-ZAWYA20170816052646/
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One Registration for one entity within Member state Threshold limit likely to set at AED 375,000 Registration likely to begin from End of September 2017 Option for Voluntary Registration Available
Group Registration likely to be permissible Penal Consequences if liable to register but not registered Every person exceeding Threshold Turnover limit to Compulsory Register
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Likely Tax period to be 3 months
There could be refund scenario as well
Filing of Return also mandatory for disclosure
Supply transactions, Emirate- wise
Payment of Tax is net of
Non-compliance may lead to Penal implications Payment & Return Filing likely to be on E-Platform (Arabic ?) Every taxable person liable to pay taxes due at end of Tax period
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Invoice to be valid document for claim
Books of Accounts and Records to be maintained are prescribed in framework Prescribed particulars to be printed on invoice
To be preserved for 5 years Additional Records may be suggested Every taxable supply has to be supported by invoice
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Accounting and Reporting Technology Supply Chain Program Management Advocacy Compliance Indirect Tax Assessment
Businesses will need to amend systems, processes and procedures and will need to ensure they comply with the new requirements, such as for example:
While VAT is charged and collected by businesses on behalf of the Government and as such should not be considered as a cost, there will be an additional burden in terms of administration and compliance with the new legislation
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Classification
zero-rated and exempt supply
Government entities
sector
Transitional Impact
transaction;
contracts/ IT system from cut-over perspective Compliance Requirement
Returns, making timely Payments, Records maintenance, etc.
Information System
which the organization operates;
complying with the prescribed requirements
generate reports in desired formats Key VAT issues
between Group Co.
tax structure products; Functional Impact
discount
mapping the same through system
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TAX STRUCTURES
ERP SYSTEM
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Business Transaction
with the VAT law Master Data
master, material master etc.. need to be updated
as per the provisions of the VAT law, where prescribed Tax Invoice Formats
agreements will be migrated during the cutover activities Data
.
M
.
iigration
transition Reports Tax Calculation and Credit
be required to be aligned with the VAT law Accounting Aspects
to be aligned with the VAT law
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Initiating it very late; IT team/software vendor not clear about the VAT requirements and configurations Delay in issuing VAT patches by the software service providers which results in delay and ineffective implementation Issues in configurations and customisation – post download of patches Issues while migrating from test environment to production Not clear about the chart of accounts requirements under VAT Errors in issuing invoices, generating reports, etc in test scenario Errors faced while conducting UATs are not addressed Many systems are outdated and can’t support changes/ modification made to it Integration of multiple ERP or softwares used Many users are accustomed to entering fixed set of data and sudden change makes it difficult for users to adapt Large number of master data of customers and vendors is required to be collated and updated in the system
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Post Roll Out
basis the system performance;
reconciliation of VAT liability and VAT input tax;
01 Jan to 28 Apr 2018
START
task force;
initiation
ANALAYZE
assessment
functions;
analysis
Implementation & Training
recommendations
functional and compliance training
01 Sept to 31 Oct 2017
masters;
formats;
IT Implementation TEST
acceptance test;
logics;
reports and documents
01 Nov to 15 Dec 2017
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