Impact of VAT Compliance on Business. Pierre Arman Market Lead for Tax & Accounting Thomson Reuters MENA Qatar Chamber of Commerce February 2018

Transcription

1 Impact of VAT Compliance on Business Pierre Arman Market Lead for Tax & Accounting Thomson Reuters MENA Qatar Chamber of Commerce February 2018

2 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors Invoicing & VAT Determination VAT Return Process How technology can help?

3 Preparing for VAT in the GCC STEP 1 VAT IMPACT ASSESSMENT Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap STEP 3 IMPLEMENTATION & TRAINING Functional and QA Testing User acceptance testing and roll out VAT registration & review Go Live planning 6-12 WEEKS WEEKS 4-8 WEEKS 4-8 WEEKS STEP 2 BLUEPRINT DESIGN BUILD & TEST Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection GO-LIVE STEP 4 Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring Tax technology : - Requirements Gathering - Design - Build - Test

4 Preparing for VAT in the GCC VAT readiness corporations STEP 1 VAT IMPACT ASSESSMENT Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap STEP 3 IMPLEMENTATION & TRAINING Functional and QA Testing User acceptance testing and roll out VAT registration & review Go Live planning 6-12 WEEKS WEEKS 4-8 WEEKS 4-8 WEEKS STEP 2 BLUEPRINT DESIGN BUILD & TEST Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection GO-LIVE STEP 4 Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring Tax technology : - Requirements Gathering - Design - Build - Test

5 Preparing for VAT in the GCC VAT readiness financial institutions STEP 1 VAT IMPACT ASSESSMENT Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT Define a VAT compliance roadmap STEP 3 IMPLEMENTATION & TRAINING Functional and QA Testing User acceptance testing and roll out VAT registration & review Go Live planning 6-12 WEEKS WEEKS 4-8 WEEKS 4-8 WEEKS STEP 2 BLUEPRINT DESIGN BUILD & TEST Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection GO-LIVE STEP 4 Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring Tax technology : - Requirements Gathering - Design - Build - Test

6 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors Invoicing & VAT Determination VAT Return Process How technology can help?

7 Lessons learned in medium & large businesses in UAE and KSA 1. Only 10% of the organisations in UAE and KSA are in a position to be ready January 1st 2018 to include VAT on every invoice and prepare their VAT returns. 2. The 10% of businesses that are ready have one thing in common. They started a VAT impact assessment and implementation of a VAT framework to support the operations and I.T. 9 months+ before the January 1st 2018 deadline 3. A third of the remaining 90% either implemented a quick fix solution in the time they allowed, which will only support the business for a few months post January 1st Two thirds of the remaining 90% were so late with their VAT preparations that they rushed through an RFP process with less than a month to go, desperately trying to get a Technology Partner to agree they can implement a compliant solution by January 1st The most common reasons CFO s and CIO s gave for a lack of action was the legislation was not due to be law for a long time and because it is the Middle East, it may never be published. 6. All of them now wished they had been one of those 10% that took action 9-10 months before.

8 Getting ready

9 Impact assessment deliverables What are the VAT compliance obligations for my business? How complex is my supply chain from a VAT perspective? Where are my business VAT risks? Should I manage VAT compliance internally, externally or both? What organisational structure & resources should I employ? 1. VAT Policy and approach 4. Optimising VAT compliance 2. Operations / VAT Compliance 3. VAT & IT Systems What VAT controls should be embedded in my business processes? How do I best integrate VAT compliance into my business processes? Which VAT treatments are apply to my business? How can I best optimise my VAT compliance Policy, Operations and IT? How do I set-up my IT systems for VAT? What IT and business user training is required?

10 Ability to setup VAT in the I.T. systems LOW HIGH Understand your I.T. systems VAT capabilities Where implementing 3 rd party VAT Engines & VAT reporting software makes sense Build VAT logic in the ERP / I.T. systems. Outsource key VAT advisory processes and controls Outsource VAT compliance reporting Build a in-house VAT compliance function. Configure VAT logic in the ERP / I.T. systems. Implement VAT auto returns software. Outsource key VAT advisory processes and controls. Implement a Plug & Go tax engine for VAT. Implement VAT auto returns software. Build a in-house VAT compliance function. Implement a Plug & Go tax engine for VAT. Implement VAT auto returns software. LOW HIGH VAT knowledge in the business

11 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors Invoicing & VAT Determination VAT Return Process How technology can help?

12 Implementation phase critical success factors Involve key stakeholders from business and I.T. this is not just another finance reporting project, VAT impacts the whole business Detailed transaction mapping The value of using accelerated implementation tools

13 Providing I.T. with a meaningful VAT systems specification requires a transaction mapping exercise to be completed in step 2 Blueprint design STEP 1 VAT IMPACT ASSESSMENT Deloitte Understand and Review GCC VAT Framework and individual country legislation Review Business / Finance / Technology / Training for VAT STEP 3 IMPLEMENTATION & TRAINING Functional and QA Testing User acceptance testing and roll out VAT registration & review Define a VAT compliance roadmap Go Live planning 6-12 WEEKS WEEKS 4-8 WEEKS 4-8 WEEKS STEP 2 BLUEPRINT DESIGN BUILD & TEST Transaction Mapping exercise to identify the tax technology determination and reporting requirements Technology vendor selection GO-LIVE STEP 4 Pilot run and reporting testing VAT submission Hyper care On-going VAT compliance monitoring Tax technology : - Requirements Gathering - Design - Build - Test

14 Supply chain models Tax models Business process scenarios Requirements Gathering Tool Configuration design assistance I N P U T Supply chain Excel Worksheet Supply chain Excel Worksheet -Tax model Visio/Excel -Business process scenarios Tax model Visio/Excel -Business process scenarios Requirements Gathering Tool (RGT Tool) A C T I V I T Y Mapping finished goods Supply chain models by product/service Preparation of tax models for each finished product/service by legal entity Mapping of tax relevant inputs for each of the business process scenarios; ship from, ship to, supply location Capture of tax results, invoice messaging, VAT reporting for each business scenario Assistance in either tax code set-up in ERP or Tax Engine set-up for VAT. O U T P U T Supply Chain Excel defining finished goods and services supply chains Tax model Visio/Excel for each finished good service Preparation of business process scenarios with tax relevant inputs to be captured in the RGT Tool - RGT Tool captures tax results, invoice messaging, VAT reporting requirements for each business scenario and tax code assignment - Summary table of tax code rates with descriptions Design support as required

15 Requirements gathering tool GCC supply chain example

16 Requirements gathering tool VAT scenario sales example

17 BREAKING OUT EACH TAX DETERMINATION FIELD ON EVERY TRANSACTION LINE BY THE WHAT, WHERE, HOW, WHO, & REPORTING TO IDENTIFY THE CORRECT VAT CALCULATION & REPORTING TREATMENT PER TRANSACTION LINE

18 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors Invoicing & VAT Determination VAT Return Process How technology can help?

19 Tax Invoices 1. Tax Invoice clearly displayed on the invoice. 2. The name, address, and Tax Registration Number of the Registrant making the supply. 3. Where a Recipient of the supply is a Registrant, the name, address, and Tax Registration Number of the Recipient. 4. A sequential Tax Invoice number or a unique number which enables identification of the Tax Invoice and the order of the Tax Invoice in any sequence of invoices. 5. The date of issuing the Tax Invoice. 6. The date of supply if different from the date the Tax Invoice was issued. 7. A description of the Goods or Services supplied. 8. For each Good or Service, the unit price, the quantity or volume supplied, the rate of Tax and the amount payable expressed in AED. 9. The amount of any discount offered. 10. The gross amount payable expressed in AED. 11. The Tax amount payable expressed in AED together with the rate of exchange applied where the currency is converted from a currency other than the UAE dirham. 12. Where the invoice relates to a supply under which the Recipient of Goods or Recipient of Services is required to account for Tax, a statement that the Recipient is required to account for Tax, and a reference to the relevant provision of the Decree- Law.

20 Tax Invoices Simplified 1. Tax Invoice clearly displayed on the invoice. 2. The name, address, and Tax Registration Number of the Registrant making the supply. 3. The date of issuing the Tax Invoice. 4. A description of the Goods or Services supplied. 5. The total Consideration and the Tax amount charged.

21 How Does VAT Work in ERPs? Tax Codes Tax codes are used to: 1. Check and calculate the tax on sales/purchases amount in the document. 2. Check if a tax account with tax type (input or output tax) can be posted to. 3. Determine the tax account.

22 Tax Codes Setup Geographies a GCC business operates in Country Region Entities in scope Business transactions Tax impact analysis Tax management Legal Entity Supply chain models sales/ purchases, products/services Tax results by sales/purchases, products/ services Tax code assignment by sales/purchases, products/services

23 UAE Tax codes sample - Client example

24 Tax Codes in ERP Sales Example Tax code driver Information ERP pricing records & condition tables Product = Table Ship From Country UAE Ship from Emirate - Dubai Ship to Country UAE Ship to Emirate - Sharjah Customer code Sharjah Shop

25 Reverse Charge

26 ERP Sales Order Processing ERP sales-related processing is often implemented to be automated Significant work during implementation No content Otherwise, end-user selects appropriate value for each field to get right tax determination 26 letters and 10 numbers are possible

27 ERP Purchase Order Selecting Tax Codes Invoice processor must select the correct Tax code to get right tax determination.

28 The VAT determination & VAT Return Process: INDIRECT TAX DETERMINATION INDIRECT TAX COMPLIANCE VAT POLICY TRANSACTIONS DETERMINATION REPORTING RECONCILIATION FILING

29 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors Invoicing & VAT Determination VAT Return Process How technology can help?

30 The VAT determination & VAT Return Process: INDIRECT TAX DETERMINATION INDIRECT TAX COMPLIANCE VAT POLICY TRANSACTIONS DETERMINATION REPORTING RECONCILIATION FILING

31 Options Available for VAT Compliance Internal option: Assuming you have sufficient knowledgeable internal resources, time and budget - Establish an internal Tax function, VAT compliance processes, and implement a combination of VAT sensitized ERP and tax technology software solutions. External option: Assuming you do not have sufficient knowledgeable resources, time and budget - Use your trusted VAT advisor and associated VAT Technology services provider to take the VAT Determination and Reporting obligations off your hands. Co-source option: Assuming sufficient resources, time and budget is only available in some but not all areas of the business - Adopt a mix of both internal & external Tax Technology delivery options Policy Improve Ops IT

32 Illustrative Sales/Purchase Order Process Business Process P P.O. Request Sales Quote Purchase P Order Sales Order Approval Goods Shipped/ Service provided Goods Received Service delivered Purchase P Invoice process Sales Invoice process Receivables Payables, Results Posted to the General Ledger

33 Adding the VAT return preparation process Business Process P P.O. Request Sales Quote Purchase P Order Sales Order Approval Goods Shipped/ Service provided Goods Received Service delivered Purchase P Invoice process Sales Invoice process Receivables Payables, Results Posted to the General Ledger & New VAT Account Tax Analyst VAT Return + VAT Due VAT Return + VAT Due Sales Invent. Errors Review Check Query Adjust GL Report + VAT Report Format Pivot Populate New VAT Reports New T24 VAT reports Tax Manager Questions, corrections... VAT Return + VAT Due Tax Authority + VIES Intrastat VAT Return + + Questions, corrections... Rates & Rules VAT Due

34 Transactions Saudi VAT Return VAT on sales 1. Standard rated domestic sales 2. Sales to registered customers in other GCC states (Tax Authorities can ask to report sales to non-registered customers in other GCC states) 3. Zero rated domestic sales 4. Zero rated exports 5. Exempt sales 6. Standard rated domestic purchases VAT on purchases 1. Imports subject to VAT paid at customs 2. Imports subject to VAT accounted for through the reverse charge mechanism = Subject to approval 3. Zero rated purchases 4. Exempt purchases 5. Corrections from previous period (up to 5,000 SAR)

35 KSA VAT Return (English) Amount (SAR) Credit notes/debit notes VAT (input/output = VAT due)

36 Transactions UAE VAT Return Type of Supplies 1. Standard- rated supplies (Local supplies of goods & Services by Emirate - Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, Fujairah) 2. Supplies subject to reverse charge (Import of goods and services by registered recipient) 1. Zero rated supplies (Supplies involving goods for export or provision of exported services) 2. Exempt supplies (Specific categories of supplies are exempt from VAT) 3. Intra GCC supplies (Supplies of goods and services to registered customers in other GCC implementing state) 4. Amendments to output tax (Corrections due to Output tax errors from a previous VAT return and where the tax amount of corrections is not more than AED) Type of Purchases 1. Standard rated purchases (Purchases from VAT registered suppliers that are subject to VAT at 5%) 2. Supplies subject to reverse charge (Import of goods and services by registered recipient) 3. Amendments to input tax (Corrections due to Input tax errors from a previous VAT return and where the tax amount of corrections is not more than AED)

37 UAE VAT Return Format

38 UAE VAT Return Format Additional Reporting VAT paid but companies cannot recover the VAT in UAE = inf. not included in the VAT Form Import of goods through other GCC States where the VAT is deductible = Reported in the VAT form

39 Partial Exemption

40 FTA VAT Audit File (FAF) Content: 1. Company Information Table 2. Purchase Listing Table 3. Supply Listing Table 4. General Ledger Table

41 Consequences of Non-Compliance

42 Agenda Preparing for VAT in the GCC Lessons learned in 2017 Implementation Phase Critical Success Factors How VAT Logic works in ERP systems? VAT Return Process How technology can help?

43 Tax Engine Plug and Go Solution Tax Determination process: Legacy systems E-commerce or other web services calling systems Batched File communication Web Services call & response Tax Tax Engine Engine Tax content SSAE16 & ISAE3402 certified Tax content for 175+ countries: Rates Rules ERP Real-time communication Country specific VAT returns Standard ERP Tax reports RFUMSV00 Tax Registry VAT Compliance Reporting Additional system feeds Legend: GCC & International Governments Filing Portals ERP Thomson Reuters Other systems

44 On-going effort Summary: Tax Engine vs. ERP native Content Configuration / Maintenance Tax controls Reporting Requirements Product / service taxability, tax rates, custom rules and data drivers Place of supply rules Dynamically adopt to new supply chains using global content Enrich tax data and provide information to invoice print programs VAT registration validation support (**covered in Compliance product or Web Services) Tax determination for multiple systems (central indirect tax control) Initial setup of company specific Tax logic (classifications, condition logic) Ongoing tax logic maintenance effort (classifications, condition logic) Simulation, batch validation, regression testing effort Time-stamped tax configuration (Eg: Decouple native tax codes from rates or tax logic effective date) Product/services mapping & Tax code mapping Audit trail, advanced logging capability Flexible order blocking functionality logic Advanced reporting tool to gain insight into tax data Tax Engine ** Native ERP + Add-in and or bespoke configuration ERP dependant Effort: High Medium low

45 VAT Return Automation Analysis & reporting Exception reports Exception Exception reports reports Exception reports Exception Management reports reports Exception reports Exception Audit reports reports ERP ERP VAT ERP VAT Reports Data Reports Sources Data import, mapping & consolidation Compliance data management Compliance Data warehouse Automatic creation of filings Country Country specific Country specific VAT specific VAT Returns VAT Returns Returns Filing data repository GCC KSA Nov 2018 UAE Dec 2018 Qatar Jan 2019

46 VAT Project Implementation Methodology Requirements Design Build Test Rollout Project team training Project kick-off Software install on a Sandbox Dev/Prod sizing Business/Tax requirements gathering IT requirements gathering Business and tax workshops and walkthroughs IT workshops and walkthroughs Integrated design workshop Software install on Development and Test servers Software configuration Unit tests Connection Test System Test Integration Test User Training UAT preparation UAT Production server install Pre deployment release validation tasks Deployment go-live Post go-live support planning Application & Technical onsite support Application support training and handover Requirements Signoff Design Signoff Configuration Signoff UAT Signoff Go-Live

47 Example roles and responsibilities Task Phase Client Partner Indirect Tax system implementation project plan and project communications All Phases A R C Install ONESOURCE Indirect Tax Determination software in Development / Sandbox Advise on server specifications, database sizing, architecture, supported platforms Requirements A I R Review and confirm proposed landscape Requirements A I R Installation and maintenance of landscape infrastructure (hardware and software) Requirements A TBD TBD Installation of ONESOURCE software in target environment (SAP Cloud or TR Cloud) Requirements A I/C R Install ONESOURCE Indirect Reporting software in Development / Sandbox Advise on server specifications, database sizing, architecture, supported platforms Requirements A I R Review and confirm proposed landscape Requirements A I R Installation and maintenance of landscape infrastructure (hardware and software) Requirements A TBD TBD Installation of ONESOURCE software in target environment (SAP Cloud or TR Cloud) Requirements A I/C R Business / Functional Requirements Conduct indirect tax business process interviews Requirements A R C Document Client Product / Service Taxability Matrix Requirements A/R R C Document indirect tax trading scenario examples w/ expected tax results Requirements A/R R C Document tax functional requirements related to ONESOURCE Determination Requirements A R R Provide guidance on tax relevant master data / data cleansing requirements. Requirements A R C Prepare ONESOURCE Determination requirements document for sign off Requirements A R C SAP Master Data Tax Relevant Document Tax Master Data requirements Requirements A R C Develop address data cleansing processes and procedures Build A/R C I Perform address data cleansing activities / Zip+4 assignments (US addresses) Build A/R C I Develop GST / VAT Registration Number data cleansing processes and procedures Design A/R C I Perform GST / VAT Registration Number data cleansing Build A/R C I Develop tax relevant Product Group strategy (Sales and Purchase Items to support product / service taxability) Build A/R C I Thomson Reuters R.A.C.I. Chart Legend: R who is Responsible A who is Accountable C who is Consulted I who is Informed HOWEVER: What if a Client does not have the required VAT expertise in-house within the business or I.T. Departments?

48 Indirect tax Determination Accelerated implementation October 2017 November 2017 December 2017 Kick-off Requirements Design Build Testing UAT Go live Hypercare Requirements Project team training Project kick-off Software install on an On Premise or Hosted Sandbox Dev/Prod sizing Business/Tax requirements gathering from transaction mapping output IT requirements gathering Requirements Gathering Tool (RGT) Design Business and tax workshops and walkthroughs IT workshops and walkthroughs Integrated design workshop Software install on Development and Test servers DCD Build Business and tax workshops and walkthroughs IT workshops and walkthroughs Integrated design workshop Software install on Development and Test servers DCD Test Connection Test System Test Integration Test User Training UAT preparation UAT Rollout & Hypercare On Premise Production server install, or Hosted solution dev/prod cut over. Pre deployment release validation tasks Deployment go-live Post go-live support planning Application & Technical onsite support Application support training and handover Hypercare Joint activities Client owned Thomson Reuters

49 VAT Compliance Reporting Implementation December 2017 January th February 2018 Kick-off Requirements Data gathering Design Build UAT Testing Parallel Run Go live Requirements Data Gathering Design Build Testing Parallel Run Formal outline Kick-off requirements Alignment of requirements Sign-off of requirements Delivery of : Sample VAT reports Sample GL reports Working papers Tax code catalogue Entity list Users / user roles VAT group info Functional spec: Import specification GL functional spec Allocation specification Tax code alignment Entity names User permissions Configuration Tax Code Mappings Import Specifications Allocation Specifications GL reconciliation report Test VAT return of one VAT registration per jurisdiction of project Assisting reconciliation process Support users in completion of returns with use of production data Joint activities Client owned Thomson Reuters

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