Implementation of VAT across the GCC

Transcription

1 Implementation of VAT across the GCC 13 July 2017 EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 1

2 Agenda Outline of the proposed VAT regime for the GCC Implications of VAT for Hospitality Industry Our VAT Implementation Approach EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 2

3 Background and basic VAT principles EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 3

4 Taxable supplies - what is subject to VAT? A broad based VAT regime with one standard rate of 5% Minimal exemptions and zero rates In principle, every supply of goods and services provided by a business is subject to VAT (including intercompany supplies), unless: There is a specific exemption, or The transaction is considered falling outside the scope of the VAT system Certain Financial services Domestic Transport Residential Rent Goods (tangible property), Services, Real property Intellectual property 5% 0% First supply of new residential EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 4

5 Input tax and tax recovery Input tax: The VAT incurred by a business on its purchases and expenses Basic principles: VAT is generally recoverable on any inputs (purchases and expenses) incurred in relation to a taxable business activity provided that the company has received a valid invoice. VAT incurred for non-economic or exempt activities cannot be recovered EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 5

6 Output tax Output tax: The VAT charged by a business on its supplies (based on the VAT rate applicable for the supply) Basic rules: The VAT treatment applicable to a supply (standard rate, zero rate, exempt) will depend on: a) The nature of the supply (e.g., type od service); and, b) The place of supply rules. A fully compliant tax invoice must be issued within the time period specified by each Member State. EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 6

7 Place of supply rules - where is VAT due? The place of supply rules determine the country in which the VAT is due Supplies of goods: Generally, VAT follows the movement of goods: a) where the goods are located at the time when the supply takes place. b) where the goods are located at the time when dispatch or transport of the goods to the customer begins EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 7

8 Place of supply rules - where is VAT due? (cont d) Supplies of services: Generally, the starting point in assessing the place of supply of services is the customer s status: a) B2B supplies of services: b) B2C supplies of services c) Hotel related services (e.g. Accommodation, events, catering): VAT is due where the services are actually provided. Hotel Accommodation would be deemed to be real estate taxable where the property is located. EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 8

9 An illustration of the standard rate of VAT Short Stay at Hotels Tax Authorities 250K (VAT) Maintenance costs 250K (VAT) 500K (VAT) Hotel charges Vendors Hotel Customer Price: 5,000k+ 250k VAT (5%) Price: 10,000k + 500k VAT (5%) Hotel s VAT return: VAT on sales: 500k VAT on purchases: - 250k Net VAT payable: 250k EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 9

10 An illustration of a zero rate (0%) supply First sale of residential property Tax Authorities 250K (VAT) Construction costs 250K (VAT) Sale of residential property Vendors Developer Customer Price: 5,000k+ 250k VAT (5%) Price: 10,000k + 0k VAT (0%) Developer s VAT return: VAT on sales: 0k VAT on purchases: - 250k Net VAT payable: 250k EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 10

11 An illustration of an exempt supply Lease of residential property Tax Authorities 250K (VAT) No VAT recovery Increased cost 250k [Assuming that developer takes fully exempt supplies] Maintenance costs Lease of residential property Vendors Developer Customer Price: 5,000k+ 250k VAT (5%) Price: 10,000k (VAT Exempt) Domestic VAT Law would define the scope of zero rated and exempt supplies for recoverability of VAT No recovery is allowed for VAT paid on inputs allocated to exempt transactions, referred to as blocked input VAT. EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 11

12 Taxable supplies Import in UAE Importation of furniture to UAE Outside GCC UAE Tax Authorities 250K (VAT) 250K (VAT) Goods Vendors Hotel Price: 5,000k Hotel VAT return: VAT on import (reverse-charged): 250k VAT on purchases (reverse-charged): - 250k Net VAT : 0k EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 12

13 Impact of VAT on Hospitality Industry EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 13

14 POTENTIAL VAT CONSIDERATIONS Potential VAT considerations The introduction of VAT will impact most divisions of businesses in the Hospitality Industry: o Short Term Accommodation o Long Term Accommodation, potentially reduced valuation or exemption o Food & Beverage o Conference and wedding hire facilities o Letting to third-parties o Hotel Management Agreement o Invoicing EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 14

15 POTENTIAL VAT CONSIDERATIONS (cont d) Potential VAT considerations o No shows o Advance Payments o Gift Vouchers (Single Purpose/Multi Purpose) o Free/ Complimentary Stay (e.g. Staff, Bloggers) o Arrangements with Travel Agents o Pricing of products will be critical for the business EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 15

16 Impact of VAT across the organization Information Technology System Changes System Replacement Compliance Auditability Tax engines Cash Flow Transaction VAT refunds Finance & Administration Pricing Contracts Demand Impact Input Tax Credits Tax Payment & Accounting Period Imported Services Sales & Marketing VAT implementation challenges Procurement Multiple transaction types Vendors Registration Preferential Treatment Business Business Structure Efficiency Reputation risk Large number of stakeholders Compliance Human Resources Group Registration Compliance Tax authority audits Quarterly VAT declarations Fringe Benefits Communication Staff Education & Training Policy and Procedures EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 16

17 Our VAT implementation approach EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 17

18 Indicative VAT implementation project timeline 5 months to go You are here Phase I Phase II Phase III Phase IV VAT ready Go live Project plan and key issues Contract or pricing reviews Management engagement Process reviews VAT process design or review Assess corporate structural and financial impacts Tax coding and transactional classification/resolution Re-pricing and new contract terms Specific training sessions Systems implementation new ERP/Tax engines Finance transformation support M&A: integration of new business Internal and external communications Support with new VAT function & governance model First return/payment review Ongoing compliance and advisory Efficiency gains supply chain management Continuous audits Shared Service Centers *Note: Phase II may be divided into a separate Planning Phase followed by an Implementation Phase Key Milestone EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 18

19 QUESTIONS? EY commercial-in-confidence All Rights Reserved GCC Value-Added Tax (VAT) I 19

20 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. The MENA practice of EY has been operating in the region since For over 90 years, we have grown to over 5,000 people united across 20 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region EYGM Limited. All Rights Reserved. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/mena