January 2018 has been announced as the preemptive month and year in which the GCC countries will implement the VAT. The GCC Ministers of Finance met to announce how all GCC countries will be urged to gear up for the introduction of the VAT. As the UAE and Saudi Arabia continue to lead the GCC VAT drive, Saudi is the first to circulate the VAT law on July 28, 2017, with the final articles to be published on 28th August 2017 and Registration of VAT system will begin on 01 September 2017 until 20 December 2017. The UAE is expected to issue its VAT law and the related executive regulations within weeks.
However, in order for businesses and systems to effectively prepare themselves for this new taxation practice, a basic understanding of value-added taxes is first required.
What is the VAT?
Value-added tax is a type of consumption tax that is placed on a product during both the production stage, and the time of final sale. When a production company sets about to manufacture any given product, the company will be taxed on the materials and supplies that it purchases to assemble the product. This tax is the VAT. When a consumer goes on to purchase the same complete product, the final price of the item will include the applicable VAT that went into the manufacturing of it.
The VAT is most commonly practiced in the European Union – and in near future – the GCC countries.
The GCC countries are expected to adopt a uniform VAT system, with a standard rate or percentage being applied to all products, with the exception of basic food items, education, and healthcare services.
The VAT is ultimately shouldered by the purchasing consumer. Official VAT authorities collect the tax from the manufacturing company at different stages in the entire production process.
What does this mean for GCC countries?
The concerned authorities and councils have announced 5% to be levied on all products subject to the VAT. This tax is expected to be effectively reinforced by January 2019, at the latest. Both the United Arab Emirates and Kuwait effective January 1, 2018, with Bahrain, Oman, Qatar and Saudi Arabia obliged to introduce the tax between then and January 1, 2019. The governments of the various GCC states have sited state-related infrastructural concerns as their basic reasons for implementing the VAT.
The implementation of the value-added tax will introduce greater diversity in income. The tax collected by official authorities will then be funneled into various government projects that will eventually benefit the public at large.
The exceptions to this policy change will include exported goods, basic food items, and health and education services.
For businesses and services, price margins are expected to increase on all products put for sale, provided they come underneath the umbrella that VAT cover. For such businesses, a thorough financial reevaluation is necessary. This includes adjusting prices to expected inflations, and deducting any taxes to be incurred on final sales. It is recommended that such services introduce efficient financial-management departments to keep constant and updated checks on VAT documentation, and correctly calculate the amounts due to the official authorities, alongside the stipulated deadlines.
How Global iTS can help the customers?
We as a Microsoft Gold partners for Microsoft Dynamics AX, MS Dynamics 365 will provide our services to keep our customers to maintain proper records required by VAT regulations. Microsoft Dynamics provides a complete module for VAT which can be customized as per client business and needs. Regarding to the long experience and qualified staff we have, we have the capability to service our clients in Saudi Arabia, Oman, Kuwait, United Arab Emirates, Bahrain and Qatar.
Why we need an ERP system?
VAT is a transactional tax with complex local country compliance requirements. Correct ERP system configuration is essential to ensure that large scale errors are not present for the company in both the charging of VAT to customers, the production of VAT-relevant documentation and the reporting of VAT relevant information.
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Our potential and existing customers can reach us today to know how we can help for a smooth VAT implementation.