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

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Cory Cooper
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1 The implementation of VAT in the Gulf States and lessons from the first 100 days in India The practical implications 27 November

Structure of VAT in the GCC 6 Territories: Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates All 6 territories have signed up to the Unified Agreement for VAT in the GCC VAT law will be

2 Structure of VAT in the GCC 6 Territories: Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates 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 Bahrain, Kuwait, Oman and Qatar are to follow later in 2018 and 2019 KSA: Legislation and the Implementing Regulations have been published. UAE: Legislation has been published, with the Implementing Regulations expected shortly. 2

3 Environment 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? 3 4 PwC Indirect Tax Forum PwC Slide 3

4 Key Differences between GCC VAT and UK VAT Key Differences 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. 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 4

5 Key issues 6 VAT grouping 1 Uncertainty 5 Exchange rate VAT impact Detailed application of the law 2 Language 4 Resource and experience 3 PwC Indirect Tax Forum PwC Slide 5

6 VAT Registration Online application system Power of Attorney and identification requirements Evidential requirements including notarisation of documents Local Tax representative for non established businesses Exception from Registration Business relationships and VAT grouping 6

7 UAE VAT Registration Online application system Power of Attorney and identification requirements Evidential requirements including notarisation of documents 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. There are several fields whereby Arabic script is required. One of these instances is on the Details of the Applicant page (as shown above). 7

UAE VAT Registration Online application system Power of Attorney and identification requirements Evidential requirements including notarisation of documents On the About the VAT Registration page,

8 UAE VAT Registration Online application system Power of Attorney and identification requirements Evidential requirements including notarisation 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. 8

9 Filing and Reporting Requirements KSA: Businesses providing taxable supplies above SAR 40m are required to file monthly returns otherwise quarterly. text UAE: The first return will be 1 month to the end of January, and quarterly thereafter. E-filing: VAT returns are expected to be submitted via an online platform. KSA Deadline: Last day of the next month following the end of the tax period. UAE Deadline: 28 th day of the month following the end of the quarter 9

10 Filing and Reporting Requirements 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 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 15 th 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 KSA invoicing requirements 10

11 Filing and Reporting Requirements KSA VAT Return 11

12 Lessons learned from the first 100 days in India Indirect Tax Forum Financial Services PwC September

13 Lessons from Indian GST implementation India s GST First 100 days Go Live! on July 01, 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 PwC Indirect Tax Forum PwC 13

Lessons from Indian GST implementation India s GST Key issues Multi tier rate structure Rates varying from NIL, 2.

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

exclusions namely real estate, petroleum, electricity, alcohol of human consumption E.g.

14 Lessons from Indian GST implementation India s GST Key issues 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 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 Coverage of GST Multiple indirect taxes subsumed, yet lot of exclusions namely real estate, petroleum, electricity, alcohol of human consumption 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 E.g. Supply and installation of machinery, gift packs etc. PwC Indirect Tax Forum PwC 14

15 Lessons from Indian GST implementation India s GST What s next GST Rate Rationalization GST council is expected to continuously review the rates on various commodities Rates rationalization will help in overcoming classification issues Anti profiteering Release of detailed mechanism and guidelines on commensurate reduction, whether product wise or entity wise, gross level or net level, immediate or staggered etc. Ease of doing business 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 Restructuring of 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 Potential Litigation Several issues which lack clarity including classification of products, place of supply rules, treatment of composite contracts, high seas etc. 15 PwC Indirect Tax Forum PwC

16 Lessons from Indian GST implementation India s GST Takeaway for a better implementation 1 Impact analysis of what? 2 Technology Integration How? Getting it advanced Engage a Technology expert Engage a consultant, determine the fiscal impact on business Plan your production, storage, logistics prices in advance Timely decisions helps in building price related strategies Integrate your ERP with the new law Keep at least two weeks for testing Tech and Tax people to work together Don t ignore technology, it will prove costlier later 3 Representation Why? 4 Compliances When? New law, suggestions welcomed Get yourself heard, make suggestions or obtain clarity from the regulators, in case of ambiguity in treatment Obtaining clarity, add certainty to the tax treatments Soon after go-live The next focus is on compliances Understand your workforce requirements and plan it Leverage on expertise for at least initial few months PwC Indirect Tax Forum PwC 16

17 Specific issues in the GCC Indirect Tax Forum Financial Services PwC September

18 VAT Treatment in UAE Free Zones The UAE VAT Law introduces the concept of Designated Zones. Designated Zones will be treated as being outside of the UAE for VAT purposes. Tax Treatment for Companies inside the State Tax Treatment for Designated Zone Companies Company Inputs Not all free zones will be designated zones distinction between fenced and unfenced free zones? Further detail is expected in the Implementing Regulations. Tax Treatment for Designated Zone Companies Company Outputs 18

19 Transitional Rules - KSA Article 79 (3) of the KSA VAT Implementing Regulations provides that if the contract was entered into before 30 May 2017 and does not anticipate the introduction of VAT then the supply may be zero rated until the 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 with written certification of this. 19

20 Transitional Rules - UAE Article 80 of Federal Decree Law No.(8) of 2017 on Value Added Tax provides that if the supplier receives Consideration or part thereof or issues an invoice for Goods or Services before the Decree-Law comes into effect, the date of supply shall be the same as the effective date of the Decree-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; and b) 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. 20

21 Managing compliance and systems for GCC VAT implementation 1 Separate registrations in each state (per Emirate reporting in UAE) 2 Flexibility to allow for changes in law/regulations 3 Language capabilities 4 Pricing and valuation 5 Best practice PwC Indirect Tax Forum PwC Slide 21

Best Practice 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

22 Best Practice 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 22

23 KSA & UAE VAT Penalties 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,

24 VAT Registration Timeline and Next Steps 24

25 PwC Contacts UK GCC ITX Desk Keith MacDonald Senior Manager, Indirect Tax Office: 1 Embankment Place, London, WC2N 6RH Direct: +44 (0) keith.s.macdonald@pwc.comc. com Emma Murphy Manager, Indirect Tax Office: 1 Embankment Place, London, WC2N 6RH Direct: +44 (0) emma.murphy@pwc.comc.com India ITX Anita Rastogi Partner, Indirect Tax Office: 18th Floor, Building 10C, DLF Cybercity, Gurgaon, Haryana, India Direct: +91 (124) anita.rastogi@in.pwc.com India Desk in the UK Deepika Daryani India Business Desk Office: The Atrium, 1 Harefield Road, Uxbridge, Middlesex UB8 1EX Direct: +44 (0) deepika.x.daryani@pwc.com m 25

26 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decisionbased on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details CS-OS 26

Value Added Tax ( VAT ) in the UAE Issue dated 14 th September 2017 Subject to executive regulation

Value Added Tax ( VAT ) in the UAE Issue dated 14 th September 2017 Subject to executive regulation 2307, LIWA HEIGHTS, JUMEIRAH LAKES TOWERS, P.O. BOX: 43711, DUBAI, U.A.E. 2705, API TOWER, AL BARSHA,