VAT in the GCC – Things You Should Know

UAE and Saudi Arabia have implemented VAT from January 1^st 2018 and other GCC countries have agreed to implement it within this year. Businesses operating from these countries should prepare for this transformation in advance. Companies in UAE and Saudi Arabia already aware how new tax law is going to affect their business operations and are taking necessary steps to integrate it within their system.

Revenues from oil and gas sufficed the government led developmental activities in GCC countries but starting from 2014, income from these sources came down considerably. Revenues from other sources are insufficient for public welfare activities. Hence, implementation of VAT is in force in these countries.

How Does VAT Works?

More than twenty percent of the world revenues come from VAT as the number of countries that have implemented VAT has exceeded 120. VAT is a consumption based indirect tax. VAT is charged on sales both to other businesses and to ordinary consumers if you are registered for VAT. Each buyer pays VAT in the supply chain. Though it is a bit complex than the sales tax, it has its own advantages and significance. VAT registered businesses deduct VAT and also reclaim VAT incurred from the tax authorities. VAT in GCC is fixed as 5% and some products such as food items, educational fees and medicines are exempted from it.

VAT Implications on Businesses

Businesses operating from UAE and Saudi Arabia need to carry out all their business transactions as per VAT law that came in to effect from January 1 2018. First of all, the companies with prescribed annual turnover should register for VAT and should maintain proper financial records. End prices, profit margins and cash flow should be categorized for VAT applications. Again, your accounting software should be changed or adjusted to compliant with VAT. Existing ERPs in companies may not be competent enough to carry out accounting as per VAT law. Hence, GCC VAT PRO software can be suitable solution to upgrade your existing accounting software and system. It is a cloud based accounting software that can efficiently carry out and control all the functions of your business firm. Are you looking for error free, VAT compliant accounting software? Subscribe to GCC VAT PRO and fully function your business within the GCC VAT framework.

Important Considerations and Possible Problems

VAT came into effect in UAE and Saudi Arabia from January 1, 2018 and delay in the implementation process in other Gulf Cooperation Council countries will lead to complex problems. Businesses and tax authorities should amicably solve all the existing problems without causing more implications. Proper communication and directions are necessary for organisations to function smoothly.

Business companies should adopt comprehensive actions to suit all its operations and impact on consumers, other companies, processes and controls, data and technology. Businesses operating from GCC countries should adopt following things to be VAT ready:

ü  Find out the important areas of impact in their businesses

ü  Come up with various scenarios for the application and design of Value Added Tax

ü  Conduct employee training on VAT

ü  Locate areas of negative impacts and choke out plans to solve them

ü  Evaluate the VAT compatibility of existing ERPs and make suitable adjustments

ü  Assess whether VAT initiative is in line with business agenda or not.