The implementation of VAT in the Gulf States and lessons ... · VAT Law. UAE in particular has been designed with the UK VAT laws in mind, but there are still key differences. Key

27 November2017

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The implementation of VAT in the Gulf States and lessons from the first 100 days in India

The practical implications

PwC Indirect Tax Forum November 2017

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Structure of VAT in the GCC


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6 Territories:

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

United Arab Emirates

KSA: Legislation and the Implementing Regulations have been published.

UAE: Legislation has been published, with the Implementing Regulations expected shortly.

All 6 territories have

signed up to the

Unified Agreement for

VAT in the GCC

VAT law will be

effective in the KSA &

UAE from January 1

2018

Bahrain, Kuwait,

Oman and Qatar are

to follow later in 2018

and 2019

PwC

Environment

Slide 3

PwC Indirect Tax Forum

VAT is a new concept in the GCC for both

business and tax authorities – what

levels of experience can we expect?

How will the tax authorities operate?

1 2

How are decisions made?

How will the law be made and compliance monitored?

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Key Differences between GCC VAT and UK VAT


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GCC VAT principles will be largely based on EU VAT Law.

UAE in particular has been designed with the UK VAT laws in mind, but there are still key differences.

Key Differences

• Standard rate of 5%

• No reduced rate VAT

• Requirement to report sales and purchases on an Emirate basis on UAE VAT returns

• Free Zones in the UAE

• Partial exemption differences – availability of special methods

• Broader definition of what constitutes business expenditure

• Broader definition of deemed suppliers

• No TOMS or equivalent VAT accounting for travel

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Key issues

Slide 5


VAT

impact

1

5

4

2

3

6Uncertainty

Resource and experience

VAT grouping

Exchange rate

Detailed application of the law

Language

VAT Registration


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Online application

system

Power of Attorney and identification requirements

Local Tax representative

for non established businesses

Exception from

Registration

Business relationships

and VAT grouping

Evidential requirements

including notarisation

of documents

UAE VAT Registration


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Online application

system




of documents

There are several fields whereby Arabic script is required. One of these instances is on the Details of the Applicant page (as shown above).

On the Declaration page, you are required to provide details of the ‘authorised signatory’. Proof of authorisation of the signatory is also essential, however it should be noted that the FTA have been requesting this evidence to be notarised to avoid delay to the application process.

UAE VAT Registration


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Online application

system




of documents

On the About the VAT Registration page, the

online form asks various questions regarding

Imports and Exports. There is a lot of

ambiguity surrounding this.

For example, under ‘GCC activities’, this section refers solely to ‘goods’

and not services; however this is not

clearly stated.

Filing and Reporting Requirements


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text

KSA Deadline:Last day of the nextmonth following the end of the tax period.

UAE Deadline:28th day of the month following the end of the quarter

E-filing:VAT returns are expected to be submitted via an online platform.

KSA:Businesses providing taxable supplies above SAR 40m are required to file monthly returns – otherwise quarterly.

UAE:The first return will be 1 month to the end of January, and quarterly thereafter.



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UAE invoicing requirements

• Expected to be similar to the UK

• Must report per Emirate

• All VAT related invoices should be kept for a period of at least 5 years (10 years for capital assets)

• Must have the customer’s VAT number

KSA invoicing requirements

• Similar to the UK

• VAT invoices must be issued for all taxable supplies and/or related payments

• Invoices and records must be in Arabic

• Records must be retained for 6 years (11 years for capital assets)

• Invoices must be issued by at least the 15th of the month following the taxable supply

• Electronic invoices must be issued where prescribed by the tax authorities

• Simplified tax invoice for some supplies less than SAR 1,000



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KSA VAT Return

Lessons learned from the first 100 days in India

Indirect Tax Forum Financial Services

PwC

September 2017

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PwC 13

03

02

01

Go Live! on July 01, 2017

• GST Laws enacted by Centre as well as State Governments

• Rules formulated, rates announced, GSTN portal activated

Compliance measures

• GSTR 3B functionality introduced• Transition forms available

• Reverse charge provisions suspended till March 2018

• Small tax payers - Quarterly returns, no additional GST compliance on advances

Simplification measures• Sectoral FAQs issued

• Communication through Twitter

• Relief to exporters – LUT instead of Bond, fast track Refund processing

• TCS, TDS and E-way bill provisions deferred

Lessons from Indian GST implementationIndia’s GST | First 100 days


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Lessons from Indian GST implementation

India’s GST | Key issues

Coverage of GST

• Multiple indirect taxes subsumed, yet lot of exclusions namely real estate, petroleum, electricity, alcohol of human consumption

Multi tier rate structure

• Rates varying from NIL, 2.5%, 5%, 12%, 18%, 28%, and cesses

• Multiple rates has led to classification issues to avail lowest rate

• E.g. an ice cream parlor claims himself to be an ice cream vendor and is charging 18% ( rate on ice creams), and not 5% as restaurant

Interpretational issues

• Composite supply - combination of goods and services, naturally bundled and supplied in conjunction each other, where supply is a principal supply

• Mixed supply - combination of goods and services

• E.g. Supply and installation of machinery, gift packs etc.


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• Release of detailed mechanism and guidelines on commensurate reduction, whether product wise or entity wise, gross level or net level, immediate or staggered etc.

Anti profiteering

• Setting up of Advance Ruling Authorities in various states, manual filing introduced

• Input tax credit matching is expected to be suspended, resolution of GSTN portal issues

Ease of doing business

• With GST settling in, the focus to be on planning in terms of supply chain optimization (e.g. warehouse consolidation, vendor price negotiation etc.)

• This will help the businesses realize the real benefits that GST has to offer

Restructuring of business

• GST council is expected to continuously review the rates on various commodities

• Rates rationalization will help in overcoming classification issues

GST Rate Rationalization

• Several issues which lack clarity including classification of products, place of supply rules, treatment of composite contracts, high seas etc.

Potential Litigation


India’s GST | What’s next


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India’s GST | Takeaway for a better implementation

Getting it advanced

Engage a consultant, determine the fiscal impact on business

Plan your production, storage, logistics prices in advance

Impact analysis

Engage a Technology expert

Integrate your ERP with the new law

Keep at least two weeks for testing

Tech and Tax people to work together

Technology Integration1 2

Soon after go-live

The next focus is on compliances

Understand your workforce requirements and plan it

Compliances4

New law, suggestions welcomed

Get yourself heard, make suggestions or obtain clarity from the regulators, in case of ambiguity in treatment

Representation3

Timely decisions helps in building

price related strategies

Obtaining clarity, add

certainty to the tax treatments

Don’t ignore technology, it

will prove costlier later

Leverage on expertise for at least initial few

months

of what ?

When ?

How ?

Why ?


Specific issues in the GCC

Indirect Tax Forum Financial Services

PwC

September 2017

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VAT Treatment in UAE Free Zones


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Not all free zones will be designated zones – distinction between fenced and unfenced free zones?

Tax Treatment for Companies inside

the State

Tax Treatment for Designated Zone

Companies –Company Inputs

Tax Treatment for Designated Zone

Companies –Company Outputs

Further detail is expected in the Implementing Regulations.

The UAE VAT Law introduces the concept of “Designated Zones”. Designated Zones will be treated as being outside of the UAE for VAT purposes.

Transitional Rules - KSA


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Article 79 (3) of the KSA VAT Implementing Regulations provides that if the contract was entered into before30 May 2017 and does not anticipate the introduction of VAT then the supply may be zero rated untilthe earlier of:

Contract renewal or expiration; or 31 December 2018

provided the customer is entitled to a full input tax deduction of the supply and provides the supplier withwritten certification of this.

Transitional Rules - UAE


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Article 80 of Federal Decree – Law No.(8) of 2017 on Value Added Tax provides that if thesupplier receives Consideration or part thereof or issues an invoice for Goods or Services beforethe Decree-Law comes into effect, the date of supply shall be the same as the effective date of theDecree-Law.

If the contract is concluded prior to the implementation date but the time of supply is after the implementation date then, and the contract does not include a tax clause then:a) The consideration will be tax inclusive; andb) That supply will be subject to VAT regardless of whether it was taken into account when

agreeing consideration.

Additional transitional rules may be included in the implementing regulations.

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Managing compliance and systems for GCC VAT implementation

Slide 21


Separate registrations in each state (per Emirate reporting in UAE)1

Flexibility to allow for changes in law/Regulations 2

Language capabilities3

Pricing and valuation4

Best practice5

Best Practice


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Due to significant uncertainty around VAT in the GCC, there are recommended ways to prepare and behave towards the new tax:

• It is recommended to take a prudent approach• Utilising tax automation and software to ease the tax

calculations, compliance burden and general VAT process

• Position papers, rulings and best practice

KSA & UAE VAT Penalties


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UAE

• Administrative penalties will not be less than 500 dirham and not more than 3 times the amount of tax for which the penalty was levied.

• Tax evasion penalties can be up to five times the relevant tax at stake.

KSA

• Tax evasion penalties can be a fine of not less than the tax due and not more than 3 times the value of goods or services.

• Failure to apply for registration shall be fined SAR10,000.

• Submission of a false tax return to the GAZT shall be fined with an amount equal to 50% of the difference between the tax calculated and the tax due.

• Failure to submit a tax return by the due date can incur a fine of not less than 5% and not more than 25% of the value of tax that was required to be reported.

• Failure to pay the tax on the due date can be a fine equivalent to 5% of the value of the unpaid tax.

• Issuance of a tax invoice by a non-registered person can be a fine not exceeding SAR100,000.

• Not maintaining invoices, books, records and accounting documents can incur a fine of not more than SAR50,000.

• Preventing or obstructing officers of the GAZT from performing their duties can incur a fine of not more than SAR50,000.

• Violation of any other provision of the Law or implementing regulations can incur a fine of not more than SAR50,000.

VAT Registration Timeline and Next Steps


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PwC Contacts

UK GCC ITX Desk India ITX


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Keith MacDonaldSenior Manager, Indirect TaxOffice: 1 Embankment Place, London, WC2N 6RHDirect: +44 (0) 20-7212-1660Email: [email protected]

Emma MurphyManager, Indirect TaxOffice: 1 Embankment Place, London, WC2N 6RHDirect: +44 (0) 20-7213-8849Email: [email protected]

Anita RastogiPartner, Indirect TaxOffice: 18th Floor, Building 10C, DLF Cybercity, Gurgaon, Haryana, IndiaDirect: +91 (124) 3306517Email: [email protected]

India Desk in the UK

Deepika Daryani

India Business DeskOffice: The Atrium, 1 Harefield Road, Uxbridge, Middlesex UB8 1EXDirect: +44 (0) 1895 5220 45Email: [email protected]://www.pwc.co.uk m

mailto:[email protected]



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The implementation of VAT in the Gulf States and lessons ... · VAT Law. UAE in particular has been designed with the UK VAT laws in mind, but there are still key differences. Key