Gearing up for 1 VAT PRESENTED BY: KELVIN TAYFIELD DATE: 9 APRIL 2017
Topics of Discussion 2 1. VAT - BACKGROUND AND ECONOMICS 2. VAT EXPLAINED 3. COMMON VAT RULES 4. WHAT WE KNOW TODAY 5. HOW WILL VAT IMPACT YOUR BUSINESS 6. CASHFLOW IMPACT 7. CHALLENGES AND RISKS 8. RECOMMENDED VAT IMPLEMENTATION ROADMAP 9. WHAT CAN BE DONE NOW 10. HOW VSG CAN HELP YOUR BUSINESS 11. QUESTIONS AND ANSWERS
VAT - Background and Economics 3 THE SYSTEM OF VALUE ADDED TAX (VAT) WAS FIRST PROPOSED BY DR. WILLHELM VON SIEMENS FOR GERMANY IN 1919 THE VAT CONCEPT WAS SEEN AS A TECHNICAL INNOVATION THAT BROUGHT A KEY IMPROVEMENT TO THE TURNOVER TAX VAT ALLOWED FOR THE RECOVERY OF TAXES PAID ON BUSINESS INPUTS AND THEREFORE AVOIDED THE CASCADING PROBLEMS THAT ARISE WITH A TURNOVER TAX THE FIRST COMPREHENSIVE VAT SYSTEM IN EUROPE WAS INTRODUCED IN DENMARK IN 1967 VAT HAS BEEN ADOPTED BY AROUND 150 COUNTRIES IN THE WORLD SO FAR VAT IS THE MAIN CONSUMPTION TAX SYSTEM WORLDWIDE VAT CONTRIBUTES APPROXIMATELY 20% OF TAX REVENUES WHERE ADOPTED
VAT - Background and Economics 4 REVENUES FROM VAT ARE ESTIMATED TO GENERATE 7.5% OF GDP GLOBALLY VAT - PROVIDES A STRONG EXAMPLE OF 20TH-CENTURY TAX POLICY CONVERGENCE THE ONLY DEVELOPED NATION WITHOUT A FEDERAL VAT IS THE USA, BUT THERE IS GROWING BELIEF THAT THE INTRODUCTION OF VAT IN THE USA IS INEVITABLE VAT IS REGARDED AS THE BEST METHOD OF TAXING GENERAL CONSUMPTION, RAISING REVENUE AND AT THE SAME TIME BEING NEUTRAL ON EXPORTS THESE FACTORS EXPLAIN VAT S GLOBAL RISE AND ITS APPEAL TO POLICYMAKERS IMF HAS RECENTLY APPLIED PRESSURE ON GCC TO ADOPT INDIRECT TAXATION
VAT - Background and Economics 5 INDIRECT TAX RATES RECENT CHANGES (SOURCE KPMG) Country Old New Change +/- Cyprus 17.0% 19.0% 2.0% + Czech Republic 20.0% 21.0% 1.0% + Dominican Republic 16.0% 18.0% 2.0% + Finland 23.0% 24.0% 1.0% + France 19.6% 20.0% 0.4% + Honduras 12.0% 15.0% 3.0% + Israel 17.0% 18.0% 1.0% + Italy 21.0% 22.0% 1.0% + Japan 5.0% 8.0% 3.0% + Montenegro 17.0% 19.0% 2.0% + Pakistan 16.0% 17.0% 1.0% + Slovenia 20.0% 22.0% 2.0% + Sudan 15.0% 17.0% 2.0% +
VAT - Background and Economics REGIONAL COUNTRIES 6 Country Start Date VAT / GST Standard Rate Other rates Algeria 1992 VAT 17 7 Egypt 1991 VAT 13 1.2, 2.9, 5, 15, 25, 30, 45 Jordan 1994 GST 16 4, Exempt, Zero rate Lebanon 2002 VAT 10 Exempt, Zero rate Tunisia 1988 VAT 18 6,12, Exempt
VAT Explained 7 THE GENERALLY ACCEPTED ESSENTIAL CHARACTERISTICS OF VAT-TYPE TAX ARE AS FOLLOWS: THE ULTIMATE BURDEN OF THE TAX IS ON THE CONSUMER THE TAX APPLIES GENERALLY TO TRANSACTIONSRELATED TO GOODS AND SERVICES VAT IS CHARGED AT EACH STAGE OF THE PRODUCTION AND DISTRIBUTION PROCESS THE VENDOR MAY DEDUCT THE VAT PAID DURING THE PRECEDING STAGES ON GOODS AND SERVICES ACQUIRED AS VAT IS AN INVOICE-BASED TAX, VENDORS ARE GENERALLY REQUIRED TO ACCOUNT FOR VAT ON THE INVOICE (ACCRUAL) BASIS, BUT A PAYMENT (CASH) BASIS IS ALLOWED IN SOME CASES TYPICALLY THERE IS A LIMITED RANGE OF GOODS AND SERVICES WHICH ARE EITHER EXEMPT, OR WHICH ARE SUBJECT TO VAT AT A ZERO RATE (FOR EXAMPLE, EXPORTS ARE TAXED AT 0% UNDER CERTAIN CIRCUMSTANCES)
VAT Explained 8 DISTINCTION BETWEEN ZERO RATED AND EXEMPT IS IMPORTANT. CAN CLAIM INPUT CREDITS WHEN ZERO RATED BUT NOT WHEN SUPPLIES ARE EXEMPT VAT CHARGED ON SUPPLIES MADE (OUTPUT VAT) LESS VAT PAID TO YOUR SUPPLIERS (INPUT VAT) AND OTHER PERMISSIBLE DEDUCTIONS = THE AMOUNT OF VAT PAYABLE/REFUNDABLE SOME COUNTRIES ADOPT A CREDIT SYSTEM FOR REFUNDS VS REFUNDING THE VENDOR WHEN IN CREDIT. REFUNDS WILL TYPICALLYBE SUBJECT TO AN AUDIT THE FACT THAT THERE ARE REFUNDS UNDER THE VAT SYSTEM AND THAT IT IS SELF- ASSESSED, MAKES IT TEMPTING FOR VENDORS TO OVERSTATE INPUT TAX OR TO UNDER DECLARE OUTPUT TAX VAT SHOULD NOT BECOME A COST TO YOUR BUSINESS AS A GENERAL RULE BUT TYPICALLY SOME EXPENSES EXIST UPON WHICH INPUT TAX IS SPECIFICALLY DENIED (SUCH AS ENTERTAINMENT AND THE PURCHASE OF CERTAIN MOTOR VEHICLES NOT NECESSARY FOR THE SUPPLY OF THE GOODS AND SERVICES)
VAT Explained 9 THERE ARE HOWEVER HIDDEN COSTS ESPECIALLY RELATING TO COMPLIANCE AND IN THE EVENT OF MALADMINISTRATION AND ERRORS (FOR EXAMPLE, PENALTIES AND INTEREST FOR LATE PAYMENT OF VAT DUE) VENDOR DUTIES AND RESPONSIBILITIES CAN BE VERY ONEROUS FOR RESPONSIBLE OFFICERS WITH GOOD ADMINISTRATION AND COMPLIANCE SYSTEMS, REVENUE AUTHORITIES WILL IN TIME TRAP OFFENDERS AND THE CONSEQUENCES AND PENALTIES ARE NORMALLY A BIG DETERRENT TO ENSURE COMPLIANCE ESSENTIALLY VAT IS ALSO A SELF POLICING SYSTEM AS INVOICES OFTEN REQUIRE REFLECTION OF THE VAT REGISTRATION NUMBERS OF BOTH PARTIES AND BIGGER ENTERPRISES ENSURE COMPLIANCE OF SMALLER ENTERPRISES ( FOR EXAMPLE THE PRODUCING OF VAT CLEARANCE CERTIFICATES PRIOR TO CONCLUSION OF CONTRACTS OR AWARDING TENDERS)
VAT Calculation Practical example pre and post VAT 10 Pre VAT Post VAT Unregistered Registered AED AED AED Purchase item 100.00 100.00 100.00 Add Input VAT @ 5% - 5.00 5.00 Total Price VAT incl. 100.00 105.00 105.00 Less Input VAT credit - - -5.00 Net Cost of goods 100.00 105.00 100.00 Add 50% mark up 50.00 52.50 50.00 Selling price of Goods ex VAT 150.00 157.50 150.00 Add Output VAT @ 5% - - 7.50 Price end consumer pays 150.00 157.50 157.50 VAT received by the fiscus - 5.00 7.50 VAT on Value Added (AED50 x 5%) 2.50 Additional amount paid by Consumer AED - 7.50 7.50 Additional percentage paid by Consumer % 0% 5% 5%
Common VAT Rules - Registration 11 CAN ONLY REGISTER IF CARRYING ON AN ENTERPRISE DEFINITION OF AN ENTERPRISE - REGULAR OR CONTINUOUS ACTIVITY (REAL ESTATE SPECULATORS, DEVELOPERS IMPACT!!) MAY NOT REGISTER IF ONLY MAKING EXEMPT SUPPLIES GROUPS - MAY REGISTER SEPARATELY IF: THEY KEEP SEPARATE ACCOUNTING RECORDS THEY HAVE SEPARATELY IDENTIFIABLE ENTITIES
Common VAT Rules - General 12 TIME OF SUPPLY: EARLIER OF DELIVERY OF GOODS OR ISSUING OF INVOICE VAT INVOICE MUST BE ISSUED WITHIN DEFINED NUMBER OF DAYS OF MAKING THE SUPPLY VAT DEEMED TO BE INCLUDED IF CONTRACT IS SILENT SERVICES IN RESPECT OF INTELLECTUAL PROPERTY RIGHTS ARE SUBJECT TO VAT SIMILAR TO EXPORTS AND IMPORTS SETTLEMENT DISCOUNTS, BAD DEBTS, CREDIT NOTES SPECIFIC RULES APPORTIONMENT RULES PART TAXABLE / PART EXEMPT ENTERTAINMENT: CANNOT CLAIM INPUT CREDIT TRAVEL ALLOWANCES: CANNOT CLAIM VAT. (BETTER TO REFUND EXPENSES)
Common VAT Rules - General 13 MOTOR VEHICLES: CAN ONLY CLAIM IN RESPECT OF COMMERCIAL VEHICLES SALARIES AND WAGES EXEMPT BUT SUPPLY OF LABOR IS A SERVICE AND SUBJECT TO VAT SALE OF GOING CONCERN IS USUALLY ZERO RATED FOR VAT DEEMED SUPPLIES THAT ATTRACT VAT: TRADING STOCK FOR OWN USE CHANGE IN USE OF ASSETS FRINGE BENEFITS SUPPLIED TO STAFF SECOND HAND GOODS DEEMED INPUT SUPPLY BY MUNICIPALITIES - LIKELY TO BE SUBJECT TO VAT (DEWA)
Common VAT Rules - Imports/Exports 14 IMPORTS ARE SUBJECT TO VAT AS WELL AS EXCISE DUTY. PAYABLE ON THE ADDED TAX VALUE (INCL. CUSTOMS DUTY) EXPORTS TO OTHER COUNTRIES SPECIFIC RULES (FOR EXAMPLE IN EU: ZERO RATED IF SUPPLIED TO VENDOR) COLLECTION PROCESS SAME AS EXCISE DUTY EXPORTS ARE SUBJECT TO VAT AT ZERO RATE (NOT EXEMPT) CAN CLAIM INPUTS. NOTE BURDEN OF PROOF TEMPORARY IMPORT OF GOODS FOR REPAIRS: SUBJECT TO VAT AT ZERO RATE. ANY GOODS OR SERVICES RELATED TO REPAIR ALSO AT ZERO RATE IMPORT OF SERVICES INCLUDING BY ELECTRONIC MEANS ARE SUBJECT TO VAT UNLESS WOULD BE EXEMPT IN HOME COUNTRY (ONUS ON THE VENDOR TO DECLARE AND PAY). INCLUDES NON REGISTERED IMPORTERS
Common VAT Rules Construction 15 Industry TENDER BID MAY SHOW VAT SEPARATELY OR STATE THAT IT IS INCLUDED IF TENDER BID IS SILENT, THEN VAT DEEMED TO BE INCLUDED JOINT VENTURES MUST REGISTER FOR VAT AS SINGLE ENTITY (TAX CLEARANCE AT BIDDING STAGE FOR GOVERNMENT TENDERS) PUBLIC-PRIVATE PARTNERSHIPS WOULD HAVE SPECIFIC RULES FOR EACH PARTY RELATIONSHIP AND ROLES OF CONTRACTORS, PROJECT MANAGERS IS IMPORTANT MAIN CONTRACTOR ACTS AS PRINCIPAL, ACCOUNTS FOR INPUT TAX ON SUBCONTRACTOR S INVOICES. DEVELOPER ONLY ACCOUNTS FOR TAX ON MAIN CONTRACTOR INVOICE SPECIAL TIMING OF SUPPLY RULES PROGRESSIVE UPON CERTIFICATION OF INVOICE BY PROJECT MANAGER
Common VAT Rules - Construction 16 Industry MUST ISSUE TAX INVOICE WITHIN CERTAIN NUMBER OF DAYS OF PROGRESS PAYMENT CLAIM SPECIFIC RULES USUALLY APPLY VARIATIONS AND ESCALATIONS ATTRACT VAT AS ANY OTHER INVOICE VAT ON RETENTIONS ONLY DUE UPON INVOICE OR RECEIPT BONUSES AND PENALTIES ARE DEEMED TO INCLUDE VAT WORK IN PROGRESS AT CUT OFF DATE: SHOULD BE SPECIFIC GUIDELINES BUT PROBABLY UP TO VENDOR TO APPORTION INVOICE BASED ON RELIABLE RECORDS
Common VAT Rules - Real Estate 17 Industry DEFINITION OF ENTERPRISE: SPECULATORS SHOULD REGISTER NEW RES. UNITS/BUILDINGS: FIRST SUPPLY ZERO RATED, THEREAFTER EXEMPT LETTING OF RESIDENTIAL DWELLINGS: EXEMPT INCLUDING LABOR CAMPS MIXED USE - COMMERCIAL, RESIDENTIAL - MUST APPORTION INPUT TAX RELIEF IN RESPECT OF AVAILABLE FOR SALE UNITS TEMPORARILY RENTED OUT IF RESIDENTIAL UNIT IS PERMANENTLY RENTED OUT (EXEMPT), OUTPUT TAX MUST BE PAID ON OPEN MARKET VALUATION. (ALSO HAS IMPLICATIONS FOR APPORTIONMENT OF INPUT TAX) RENTAL POOLS MUST REGISTER SEPARATELY FOR VAT. MUST ACCOUNT FOR VAT WHEN OWNER USES THE UNIT SECOND HAND UNITS: CAN CLAIM INPUT ON UNITS FROM NON VENDOR
What We Know Today - General 18 INFORMATION HAS SYSTEMATICALLY BEEN MADE AVAILABLE THROUGH GOVERNMENT PRESS RELEASES, THE MINISTRY OF FINANCE WEBSITE, BRIEFINGS AND TWEETS AMONGST OTHERS AND AS A RESULT WHAT WE KNOW TODAY IS: ALL GCC STATES HAVE SIGNED THE ACCORD AND PLAN TO IMPLEMENT DURING 2018 SOME MAY NOT BE READY BY 1 JANUARY 2018 BUT ALL SHOULD BE READY BY END OF 1 ST OR 2 ND QUARTER OF 2018 UAE WILL IMPLEMENT ON 1 JANUARY 2018 INTRODUCTORY RATE WILL BE 5% AED12B EXPECTED REVENUE IN 2018 = NEARLY 1% OF GDP AND AED20B EXPECTED REVENUE IN 2019 HEALTHCARE, EDUCATION, OIL & GAS, CERTAIN FOOD ITEMS, THE FIRST SUPPLY OF RESIDENTIAL BUILDINGS AND INTERNATIONAL TRANSPORT WILL BE ZERO-RATED
What We Know Today - General 19 RESIDENTIAL PROPERTY LETTING WILL BE EXEMPT FINANCIAL SERVICES MAY BE EXEMPT LIFE ASSURANCE WILL BE EXEMPT BUT INSURANCE WILL BE AT STANDARD RATE SUPPLIES TO GOVERNMENT WILL BE AT STANDARD RATE A MARGIN SCHEME WILL APPLY TO SECOND HAND GOODS (IE VAT WILL ONLY BE PAID ON PROFIT AND INVOICES WILL NOT BE REQUIRED TO SHOW VAT THUS NOT HAVING TO DISCLOSE PROFIT MARGIN) THERE WILL BE SPECIFIC EXCEPTIONS INCLUDING CHARITABLE ORGANIZATIONS, GOVERNMENTAL BODIES AND INTERNATIONAL PARTICIPANTS IN EXPO 2020 SPECIAL RULES WILL APPLY FOR WATER AND ENERGY SUPPLY TOURIST REFUNDS ARE UNLIKELY DUE TO LOW RATE AND ADMINISTRATION COSTS INVOLVED
What We Know Today - Transactions 20 IMPORTS WILL ATTRACT VAT REVERSE CHARGE WILL APPLY ON TOP OF EXCISE DUTY INTRA-GCC TRANS-SHIPMENTS WILL BE ZERO RATED: EXPORTING COUNTRY WILL HAVE TO PAY VAT COLLECTED AT PORT TO RECEIVING COUNTRY. IF GOODS ARE THEN TRANSPORTED TO GCC COUNTRY AFTER VAT IS CLAIMED, THIRD PARTY IS TO ADJUST AND EXPORTING COUNTRY MUST PAY VAT OVER TO RECEIVING COUNTRY SUPPLIES WILL INCLUDE BARTER TRANSACTIONS RENTAL CONTRACTS ENTERED INTO IN ADVANCE OF IMPLEMENTATION DATE (IF IN THE NORMAL COURSE OF BUSINESS) WILL NOT ATTRACT VAT (POST DATED CHEQUES ARE EXCLUDED) ADVANCE APPLICATIONS REQUIRED FOR RULINGS ON COMPLEX TRANSACTIONS PRIOR TO EXECUTION
What We Know Today - Registration 21 MANDATORY REGISTRATION - $100,000 ANNUAL TURNOVER VOLUNTARY REGISTRATION - $50,000 ANNUAL TURNOVER START-UPS CAN REGISTER PRIOR TO RECEIVING INCOME IF EXPENSES EXCEED $50,000 VOLUNTARY REGISTRATION WILL COMMENCE 1 JULY 2017 AND COMPULSORY REGISTRATION DURING 3 RD QUARTER OF 2017 REGISTRATION WILL BE DONE ONLINE GROUP REGISTRATION WILL BE ALLOWED IF GROUP COMPANIES ARE IN SAME OWNERSHIP AND SAME COUNTRY SUPPLIERS OF ELECTR0NIC SERVICES WILL HAVE TO REGISTER IN THE STATE WHERE THEY ARE USED DEFINITION OF A TAXABLE ENTERPRISE INCLUDES OFFSHORE ENTITIES
What we know today Returns and Payments 22 TAX PERIOD QUARTERLY WITHIN PRESCRIBED NUMBER OF DAYS AFTER CLOSURE OF VAT PERIOD (DEPENDING ON SIZE AND NATURE OF ENTERPRISE THE TAX PERIODS MAY BE SHORTENED) RETURN SUBMISSION MUST BE DONE ONLINE ONLY (E-FILING) LAWS STATE THAT SUBMISSIONS MUST BE MADE IN ARABIC BUT E-FILING PORTAL WILL HAVE ENGLISH CAPABILITY (APPEAL/COURT PROCESSES MUST BE IN ARABIC) SUPPORTING DOCUMENTS MAY BE IN ENGLISH 30 DAY PERIOD TO MAKE CORRECTIONS TO VAT RETURNS ALTHOUGH PENALTIES MAY STILL BE APPLIED ON DEFICIENCIES NO AUDIT OF VAT RETURN (VOUCHERS) REQUIRED BUT AN ENTERPRISE MUST MAINTAIN RELIABLE AND ACCESSIBLE RECORDS AND REPORTS IN CASE OF INSPECTION/AUDIT BY TAX AUTHORITY
What we know today Returns and Payments 23 VAT WILL BE PAYABLE ON DEEMED SUPPLIES (SUCH AS GIFTS AND PROVISION OF FOREIGN SERVICES) AND REFLECTED IN RETURNS PAYMENTS WILL HAVE TO BE MADE WITHIN A SPECIFIED PERIOD OF THE DUE DATE OF THE RETURN PAYMENTS MUST BE MADE ONLINE LATE PAYMENT PENALTIES WILL BE IMPOSED ADDITIONAL REPORTING REQUIREMENT BY EMIRATE REVENUE ONLY TAX AGENTS MAY SUBMIT RETURNS FOR ENTERPRISES. (QUALIFYING CRITERIA TO BE AGREED) PENALTIES FOR NON COMPLIANCE UP TO 500% AND BUSINESS CLOSURE FOR 72 HOURS
What We Know Today Time of 24 Supply and Invoicing TIME OF SUPPLY (TAX POINT) DEEMED TO BE DATE OF DELIVERY OF GOODS OR COMPLETION OF PROVISION OF SERVICES INVOICE MUST BE ISSUED WITHIN 14 DAYS OF TAX POINT PLACE OF SUPPLY WILL DETERMINE JURISDICTION OF VAT LIABILITY, RETURN AND PAYMENT OBLIGATIONS
What we know today Accounting Records and Vouchers 25 5 YEAR RECORD RETENTION REQUIREMENT EXCEPT FOR SOME CAPITAL ASSETS
How will VAT impact your business Business Cash flow Vatable transactions and rulings Imports and exports Group structure Administrative costs Compliance Registration Governance, processes and procedures Invoices Returns VAT Payments Audit Record keeping Technology and systems Systems upgrades accounting, POS Data and record storage Sales and Marketing Effect on demand and pricing Customer communication Current contracts Suppliers Staff VAT status of suppliers Supplier compliance Current supply contracts Capability assessment Responsible officer Training, job descriptions Change management 26
Cash Flow Impact 27 VAT WILL IMPACT ON CASHFLOW AND IN SOME CASES SIGNIFICANTLY CONSTRUCTION AND CONTRACTING BUSINESSES MAY BE MORE AFFECTED EXPENDITURE NORMALLY PRECEDES REVENUE INPUT CREDIT MAY NOT BE REFUNDED MONTHLY OR AT ALL IF OFFSET AGAINST OUTPUT VAT WITH TIME OF SUPPLY RULES WILL NEED TO BE CAREFULLY CONSIDERED OUTPUT VAT MAY BE PAYABLE PRIOR TO RECEIPT OF FUNDS VAT PAYMENTS AND REFUNDS WILL NOT NECESSARILY FOLLOW THE TIMING OF SUPPLIER PAYMENTS AND CASH RECEIPTS WHICH WILL REQUIRE CAREFUL PLANNING TO ENSURE YOUR CASHFLOW IS NOT NEGATIVELY IMPACTED BY VAT
Cash Flow Impact VAT impact - a practical cashflow example (Assume uarterly return) : 28 Jan Feb Mar Apr May Jun Jul AED AED AED AED AED AED AED Post VAT Sales Cash 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Credit (90 day terms) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Add Output Vat @ 5% 100 100 100 100 100 100 100 Total sales (VAT inclusive) 2,100 2,100 2,100 2,100 2,100 2,100 2,100 Received from Customers 1,050 1,050 1,050 2,100 2,100 2,100 2,100 Costs @ 70% of sales -1,400-1,400-1,400-1,400-1,400-1,400-1,400 Add Input Vat @ 5% -70-70 -70-70 -70-70 -70 Paid to supplier (COD terms) -1,470-1,470-1,470-1,470-1,470-1,470-1,470 VAT payments / Receipts Input tax due from Tax Authorities - - - 210 Output tax payable to Tax Authorities -300 Net Cashflow - monthly -420-420 -420 540 630 630 630 Cumulative cashflow -420-840 -1,260-720 -90 540 1,170 Pre VAT Sales Cash 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Credit (90 day terms) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Add Output Vat @ 0% - - - - - - - Total Sales 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Received from Customers 1,000 1,000 1,000 2,000 2,000 2,000 2,000 Costs @ 70% of sales -1,400-1,400-1,400-1,400-1,400-1,400-1,400 Add Input Vat @ 0% - - - - - - - Paid to supplier (COD terms) -1,400-1,400-1,400-1,400-1,400-1,400-1,400 Net Cashflow - monthly -400-400 -400 600 600 600 600 Cumulative cashflow -400-800 -1,200-600 - 600 1,200 Difference in net cash (20) (40) (60) (120) (90) (60) (30)
Challenges and Risks 29 Implementation Compliance & Procedures Understand the laws and rules Registration of affected group entities Resources, costs Filing & payment procedures Project management capability Rulings & clarifications Group structure intercompany transactions IT system vendor s capacity Communication Supplier co-operation Stakeholder awareness Refunds/credits Audits, fraud and penalties Business impact Job descriptions & training Reinforce revised processes and procedures Customer communication Cash flow, administration costs
Recommended VAT Roadmap PHASE 1 PHASE 2 PHASE 3 PHASE 4 30 Vat impact assessment, Vat project plan and strategy. Detailed design and set up phase. Implementation, testing and Go live. Post implementation and support Work performed 1. Carry out VAT readiness assessment. 2. Conduct stakeholder workshop. 3. Review business as a whole and examine how it may be impacted from a VAT perspective across these dimensions: Sales, pricing, marketing Finance and Admin AP and AR processes Tax management Cashflow impact Compliance and controls IT Systems. Legal, Current and Future. Human Capital 4. Develop an appropriate project plan for the business to adopt with respect to its new operating environment. This plan will set out the what, when, how and by whom. 5. Review ERP / IT system capability and reuirements, assist with research, assessing etc. 1. Review high level transaction maps prepared by client and identify and comment on VAT impact points. (This assumes transaction mapping has been completed by the company). 2. High level mapping of the VAT legislation vis a vis all business transactions and processes. (Done once legislation is available). 3. Develop Input and output tax allocation matrix. 4. Complete technology assessment and plan. 5. Review of contracts and action plan developed to deal with specific issues in the contracts and the transition to a VAT environment 1. Advising on implementation of the VAT project plan. 2. ERP / IT system detailed design and solution implementation. 3. If reuired project manage the ERP/ IT system changes / implementation. 4. Train staff. 5. Assist in testing the system / process changes to ensure they are fit for purpose. 6. Manage all VAT transitional matters and ensure that the business is VAT ready. 7. Advise and assist with VAT registration. 8. Assisting with VAT rulings on specific transactions. 9. Assist with communication plan; internal and external. 1. Sample checking and testing of records to ensure that the new post VAT implementation procedures are working correctly. 2. Assist staff with VAT return preparation / submission and perform high level reconciliation of VAT return to financial transactions. 3. Deal with VAT ueries that may arise, internal and from the Tax Authorities. 4. Provide ongoing support as and when reuired. 5. Provide additional services as and when reuired.
Recommended VAT Roadmap 31 PHASE 1 PHASE 2 PHASE 3 PHASE 4 Vat impact assessment, Vat project plan and strategy. Detailed design and set up phase. Implementation, testing and Go live. Post implementation and support Deliverables 1. VAT readiness assessment report (1). 2. Stakeholder workshop (2). 3. Relevant business VAT impacts summary (3) setting out matters to be addressed and possible solutions covering the above areas including; Description of businesses and processes affected by VAT. Gap analysis; policies, processes, people, IT, contracts Recommendations IT capability assessment and road map. 4. Overall project plan (4). 5. Debrief Meeting - Discuss key findings and agree priority focus areas for Phase 2 implementation. 1. Transaction maps detailing VAT impact (5). 2. Transaction maps referenced to the legislation (6). 3. Input and output tax allocation matrix (7). 4. Report dealing with the results of the technology assessment and the plan to address shortcomings (8). 5. Technology procurement assessment and report (if necessary) (9). 6. Contracts list by category and action plan developed to deal with specific issues in the contracts and the transition to a VAT environment (10). 7. Review and updated project plan. 8. Debrief Meeting - Discuss key findings and agree priority focus areas for Phase 3 implementation. 1. Review of ERP / IT system transaction mapping (11). 2. Review of and report on ERP / IT system detailed design system configuration / set up (12). 3. Assist in testing the system and oversee adjustments. (13) 4. Identify training reuirements and train staff on new processes and procedures (14). 5. Oversee VAT registration of all enterprises as defined in the legislation (15). 6. Obtain VAT rulings on specific transactions where reuired (16). 7. Formal communication and notices to clients, suppliers and stakeholders (17). 8. Debrief Meeting - Discuss key findings and agree priority focus areas for Phase 4 implementation. 1. Pre-Go Live Meeting (18). 2. Review sample VAT of returns prior to submission (19). 3. Prepare high level VAT return reconciliation (20). 4. Resolve exceptions and teething issues (21). 5. Update deliverables for any changes to the legislation (22). 6. Deliver go live testing audit report. 7. Assess staff capabilities post live assessment report.
VAT readiness assessment report summary 32
What Can be Done Now 33 WHILE THEY ARE AVAILABLE, ENGAGE A CONSULTANT AND SOFTWARE VENDOR WHO CAN FACILITATE; Impact assessment, project plan, resource reuirementsand budget IT strategy is time for a review of ERP system? Record keeping, data storage and back up cloud? Review group structure and business model People capability, training needs, recruitment Policies and manuals reuired or updated Process mapping General ledger, receivables, payables amendments and accounting entries Invoice, uotation re-design
What Can Be Done Now 34 Staff awareness training VAT impacts most of the organization POS redesign/upgrade Contract amendments procedures must be embedded now Amend tender procedures Amend RFP documentation Supplier assessment Design MIS and audit reports, procedures Assess cash flow impact Change management plan IT, testing, training, communication Seek rulings
How VSG can help your business VSG Team has over 50 years of relevant experience with specific experience in; VAT due diligence VAT system implementation and project management VAT manuals VAT training VSG can assist you with all you VAT reuirements including; Due diligence and impact assessment System assessment and implementation Staff assessment and training Compliance and governance VAT manuals, policies and procedures VAT registration VAT rulings 35
Questions? 36
Thank You 37 Contact The Vat Services Group Kelvin Tayfield Managing Director 00971566503454 k.tayfield@vatservicesgroup.com www.vatservicesgroup.com