ISYX VAT Solution GCC VAT

Readiness Plan
Sandeep Mahindra
 What is VAT for GCC ?
VAT is an indirect tax applied on the consumption of
most goods and services. VAT is levied by VAT registered
businesses that supply goods and services in the course
or furtherance of their business. VAT is also applicable on
the import of goods.

VAT is levied at each stage in the supply chain and is

collected by businesses on behalf of the government.

VAT is ultimately incurred and paid by the end consumer.

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT | How it Work ?

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Key Features VAT GCC Framework
The standard VAT rate will be 5% unless a zero rate or exemption applies.
The Member States have the right to subject the following sectors to a zero rate or to exempt them from VAT:
Education
Health
Real estate
Local transport
The Member States have the right to subject the oil sector, petroleum derivatives, and gas to a zero rate of VAT.
Individual GCC countries have the right to subject certain food products to a zero rate of VAT.
The Member States have the right to subject medical supplies to a zero rate of VAT.
Intra-GCC and international transport will be subject to a zero rate of VAT.
The export of goods to jurisdictions outside of the GCC Member States will be subject to a zero rate of VAT.
The Member States have the right to exempt Financial Services from VAT. The term financial services is not defined but
broadly the exemption will generally relate to dealings in money, securities, foreign exchange and the operation and
management of loan accounts, deposits, trade credit facilities and related intermediary services. The exemption is not
expected to extend to fee based services transacted by a financial institution. However, Member States may choose to apply
different VAT treatments to financial services if they wish.
Supplies of goods and services from a VAT registered person in one Member State to a VAT registered person in another
Member State are subject to the reverse charge mechanism.
VAT grouping appears to be permitted between two or more legal persons resident in the same Member State.
The treatment of GCC free zones is not addressed and it is left to each Member State to determine its own VAT treatment for
free zones.
Businesses with an annual revenue of over AED 375,000 will be required to register for VAT purposes.
Businesses with an annual revenue between AED 187,500 and AED 375,000 will have the option to register for VAT purposes.

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Transaction Types

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Transaction Type & Treatment

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Authority Expectation from Business
Registration: Mandatory registration for VAT for all businesses exceeding a specific
VAT registration threshold. In simple terms, only businesses that meet a certain
minimum annual turnover requirement will have to register for VAT.
Submission of Legal Reports:
Filing of periodic VAT returns with the tax authorities (either monthly or
quarterly)
Remitting any VAT payable by a specified date.
Record keeping: For all business transactions:
Tax invoices
Debit or credit notes
Import and export records
Records of goods/services provided for free or allocated for private use
Zero rated or VAT exempt supplies and purchases
e-Invoice: Copy of all customer invoices to be replicated at government system
(expected to be future requirements)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Risks Example : KSA Govt. Announcement

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Business Challenges GCC VAT
Pressure from the authorities for Legal Compliance
/ Penalties on late submission and incorrect
reporting /
Demand for accurate VAT reporting

Deadlines for submitting VAT returns /Cash

Management & Tax Liability

Impacts entire sales and purchase transactions

and resultant Data Integrity / Master Data
changes and validations

Complex rules (e.g. Cross-border services,

Transition Rules, mixed supply)

Industry specific VAT

requirements

CONFIDENTIAL @ Copyright 2016. All rights reserved

 IT Challenges GCC VAT
Need to deliver a standardized approach to supporting
VAT for ERP users with low TCI to drive business
continuity
Consistent upgrade path for VAT functionality

Total Cost of Development for custom VAT

applications, Forms and Reports increase the
overall TCO

Maximized use of standard ERP

functionality
A solution aligned with the long-term direction of
ERP products

High pressure from government to ascertain

compliance versus high effort , restricted time line and
limited budget

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Compliance - Challenges

Inaccurate & delayed VAT returns can attract penalty

Complex rules to manage special conditions
Interfaces and ERP customizations may pose
additional challenges for VAT enablement
Impacts entire supply chain and related financial
accounting
Regression testing of ERP and all connected systems
Managing transition scenarios such as Taxable Goods
/ Services Sold Before 1 January 2018 and Returned
On Or After 1 January 2018
Sub optimal implementation of VAT can even result in
cash flow issues for organization

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Standard Supply VAT 5%
Value AED 100
Service Provider + Input VAT@5% AED 5
Total AED 105

India UAE 3 Procurement of

Services
VAT
Import VAT
Sale
Supplier 1 ABC 4 Customer
Import of Goods
Customs duty VAT
2
Value AED 1000 Local purchases Sales AED 2000
+ Customs Duty@5% AED 50 +Output VAT@5% AED 100
AED 52.5
VAT Total AED 2100
+ Import VAT@5%
Total AED 1102.5

Value AED 500

+ Input VAT@5% AED 25 Supplier Full credit allowed
Total AED 525
Cost

Month/Quarter end position Amount

Output VAT (Total VAT collected on Sales) 100 (A)

Input VAT (Input VAT 52.5 + 25 + 5) 82.5 (B)

Net VAT Payable 17.5 (A-B)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Zero Rated Supply VAT 0%
Value AED 100
+ Input VAT@5% AED 5 Service Provider
Total AED 105

Procurement of
3
India UAE Services

VAT
Africa
Import VAT
Export
Supplier 1 ABC 4 Customer
Import of Goods
Customs duty VAT 0%
Customer
2
Value AED 1000 Export AED 2000
Local purchases +Output VAT@0% AED 0
+ Customs Duty@5% AED 50
AED 52.5
VAT Total AED 2000
+ Import VAT@5%
Total AED 1102.5

Value AED 500

+ Input VAT@5% AED 25 Supplier
Total AED 525 Full credit allowed

Cost

Month / Quarter End position Amount

Output VAT (Total VAT collected on Sales) 0 (A)

Input VAT (Input VAT 52.5 + 25 + 5) 82.5 (B)

Net VAT Refundable 82.5 (A-B)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Exempted Rated Supply VAT Exempted
Service Provider
Value AED 100
VAT@5% AED 5
Total AED 105
3 Procurement of Services
India UAE
VAT
Import VAT
Sale
Supplier 1 ABC 4 Customer
Import of Goods
Customs duty No VAT
2
Value AED 1000 Local purchases Sale AED 2000
+ Customs Duty@5% AED 50 Total AED 2000
AED 52.5
VAT
+ Import VAT
Total AED 1102.5

Value AED 500

+ VAT@5% AED 25 Supplier Cost
Total AED 525

Month / Quarter End position Amount

Output VAT (Total VAT collected on Sales) Nil (A)
Input VAT Nil (B)

Increase in cost (P/L Impact) 82.5 (A-B)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 RCM Reverse Charge Mechanism - Sample
Value AED 100
Service Provider + Input VAT@5% AED 5
Total AED 105
India UAE Procurement of
3 Services
VAT
Import VAT
Sale
Supplier 1 ABC 4 Customer
Import of Goods
Customs duty VAT
2
Value AED 1000 Local purchases Sales AED 2000
+ Customs Duty@5% AED 50 +Output VAT@5% AED 100
VAT Total AED 2100
+ Import VAT@5% AED 52.5 (RCM)
Total Cash outflow AED 1050

Value AED 500

+ Input VAT@5% AED 25 Supplier Full credit allowed
Total AED 525
Cost

Month / Quarter End Position Amount

Output VAT (Total VAT collected on Sales+ VAT payable under RCM) (100+ 52.5) 152.5 (A)

Input VAT -Input VAT + Input credit under RCM (25 + 5 + 52.5) 82.5 (B)

Net VAT Payable 70 (A-B)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 RCM Exempted Business
If the buyer makes an exempt supply, then amount of VAT
under RCM becomes a cost for the business. Below diagram
illustrates the case.

Outside GCC UAE

Exempt
Service Provider 1 ABC LLC Customer
Import of Sale
services
VAT *

No credit allowed

* VAT to be paid under RCM

(No credit allowed hence, cash payment required)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 RCM Taxable Business
If the buyer makes a taxable supply (Standard rate or Zero rated), then
buyer of the goods or services makes the declaration of purchase (input
VAT) and shows sales (output VAT) in their VAT return. In this way, the two
entries cancel each other from a cash payment perspective in the same
return. Below diagram illustrates the case.

Outside GCC UAE

VAT
Service Provider 1 ABC LLC Taxable Customer
Import of Sale
services
VAT *
Full credit
allowed

* VAT to be paid under RCM

(Full credit allowed hence, only a book entry)

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Invoice Template

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Cash Flow - Sample
Payment to
vendor made
(with VAT)
Goods Sold Recovery
Purchases made VAT paid to form the
(Goods received) (Delivered)
government customer

20/8/18 15/9/18 20/9/18 20/10/18 * 30/11/18

2018 Aug Sep Oct Nov
Purchase 50 Outflow 52.5 Sale 100 Outflow 2.5 Inflow 105
VAT 2.5 VAT 5
Total 52.5 Total 105

Cash blockage on account of VAT = 2.5

Cash blockage = 2.5

Cash flow needs to be planned to optimize the working capital requirements

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Particulars Amount
Purchase Account / Service (Expense) Dr. (Value of Purchase)
VAT Input Account Dr. ( VAT on Purchase)
Post VAT Accounting Bank/ Name of Creditor Account Cr. (Value of Purchase + VAT input)

Cash or Bank or Name of Customer Account Dr. (Value of Purchase + VAT output)
Sale Account Cr. (Value of Sale)
VAT Output Account Cr. (VAT on Sale)
Month end/ Period End Amount
Output VAT XXX (A)

Input VAT YYY (B)

Net VAT Payable ZZZ (A-B)

Particulars Amount
VAT Output Account Dr. YYY
VAT Input Account Cr. YYY

Net VAT Payable Account Dr. ZZZ

Bank Account Dr. ZZZ

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Returns Calculation

CONFIDENTIAL @ Copyright 2016. All rights reserved

 ISYX VAT Offerings - Options

Option 1 | ISYX VAT Solution on cloud to Integrate with any ERP/Application

VAT Connectors for AX/SAP/IFS
Patch upgrade and VAT Implementation Services
VAT Assessment | VAT Readiness | Pre-Configuration | Configuration | Test & Run

Option 2 | SAP VAT TAAS Solution and Sell our Focus Services
Patch upgrade and VAT Implementation Services
VAT Assessment | VAT Readiness | Pre-Configuration | Configuration | Test & Run

Option 3 | ERP VAT On-Premise Solution and Sell our Focus Services
Patch upgrade and VAT Implementation Services
VAT Assessment | VAT Readiness | Pre-Configuration | Configuration | Test & Run

CONFIDENTIAL @ Copyright 2016. All rights reserved

VAT Obligations

1 Taxable statuses

2 What is the taxable supply?

3 Place of supply?

4 Is there an Exemption?

5 Who is liable?
 GCC VAT Engine
Treatment &
Single online Return boxes
VAT Determine VAT
Expert Web Expert Web
query Invoice VAT treatment Code Customer
Facts Maps Tax code
addresses VAT code
good/ mapped
Re-coded/

VAT Checker Transport customer

Input transactions Engine Output

Type
etc
Real time
VAT legislation Real time
ERP Interface Interface ERP

VAT
Updates Code
lookup

Offline map of
customer tax codes
to key invoice
legislation
& facts

CONFIDENTIAL @ Copyright 2016. All rights reserved

 GCC VAT Engine

Fact
Fact 1
2
Fact
3

VAT VIES Compliant Reporting

Legislation Invoice Guidance
Calculation Check

CONFIDENTIAL @ Copyright 2016. All rights reserved

 GCC VAT Reporting
E
X
T
R
Oversight and
SAP A
C review
T
O
R

E
X
T Reconciliations
R
Reporting ISYX VAT
Oracle A
C INBOX Check Reporting
Audited
manual
T
O Validation Adjustments
R

XML
Fixed file PDFs
Real time
XLS submission

VAT ESL Intrastat Sales & VAT Refunds Local

Returns Purchase books listings
Ledgers

CONFIDENTIAL @ Copyright 2016. All rights reserved

 GCC VAT Reporting
SAP, Oracle
connectors
Text & XLS Manual
import input

Direct
Interface Warnings
Data collection
Upload
file
VAT, listing & Automatic
Intrastat Errors
Manual data checks
PDF filing
ISYX
VAT Reporting
Exception
Oversight Review
reports
Correct

Approve Reconciliation

Adjustment

CONFIDENTIAL @ Copyright 2016. All rights reserved

 SAP VAT Computation TAAS | Tax Service

CONFIDENTIAL @ Copyright 2016. All rights reserved

 SAP VAT Compliance at a Glance

CONFIDENTIAL @ Copyright 2016. All rights reserved

 VAT Computation TAAS | Tax Service

CONFIDENTIAL @ Copyright 2016. All rights reserved

 SAP VAT Localization Template & Notes

Pilot SAP note GCC countries

Minimum Pre-requisites :
2477105 - VAT implementation in Saudi Arabia
2456119 - VAT Baseline Package for UAE - ECC Customers: SW component SAP_APPL release 606 and onward
2482967 - VAT Baseline Package for Qatar - S4 Customers: all releases of S4HANA - SW component S4CORE release
2484173 - VAT Baseline Package for Oman 100 and onward
2502155 - VAT Baseline Package for Kuwait
Microsoft Excel
Worksheet
2509484 - VAT Baseline Package for Bahrain

CONFIDENTIAL @ Copyright 2016. All rights reserved

 ISYXs VAT Service Categories - a 4 Pillar Approach

We are actively engaged with our partner network & tax authorities

Government agencies
Assessment Implementation QA Audit
Partner Network

Services Services Services

Services

Supported by Global Delivery/AGS/Education/ISYXLabs

CONFIDENTIAL @ Copyright 2016. All rights reserved

 GCC VAT Implementation Phase - Approach

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Question and Answers

CONFIDENTIAL @ Copyright 2016. All rights reserved

 Sandeep Mahindra
+971-523261715

CONFIDENTIAL @ Copyright 2016. All rights reserved