BULLS VS BEARS | Tax Time
Stuart Halstead, Indirect Tax Leader at Deloitte Middle East
Preparatory Steps will Serve Well At this time there have been a number of initial statements made by certain Ministries of Finance around the region indicating that they are studying VAT and may well move to introduce the tax in due course, a firm implementation date has not yet been publicized by any of the countries. Nevertheless, there are steps that businesses can take now to identify likely areas of process and associated changes that will be necessary which will serve them well in the future, including: Consider contractual pricing arrangements with a view to allowing for the charging of VAT on supplies; consider the pricing implications of VAT and the impact on customer purchasing behaviors; determine the potential cash-flow effect of the timing differential that often exists where businesses must remit VAT to the authorities prior to obtaining refunds of VAT incurred on costs; determine any additional working capital requirements associated with VAT as a result of a cash-flow impact and the cost of funding that additional facility; for those businesses potentially impacted by VAT exemption (usually
Finbarr Sexton, Partner, Tax Advisory for EY Qatar
Being VAT-compliant is Key The introduction of a VAT forms a significant shift in fiscal policy in the UAE. In contrast to corporate taxation wherein businesses file their tax returns annually and are generally assessed on these returns after a process of review by a tax authority, VAT will generally have a monthly reporting obligation resulting in a payment of taxes or claim for a refund from the tax authority. This means that tax authorities always check afterwards on correct VAT reporting. If companies are not VAT compliant, they
February 2016 |
www.wealth-monitor.com
risk penalties and interest charges for late settlement of VAT. The amount of fines may increase very quickly, which confirms the importance of being VAT- compliant.
Businesses will Face a Difficult Transition The policy shift to a modern VAT regime will give rise to many challenges for businesses in the UAE and business owners will need to be prepared for the introduction of a tax system that impacts every sector of the
the financial services and insurance sectors amongst a few others), determine the likely cost associated with irrecoverable VAT; ensure that books and records ordinarily required for the administration of VAT are maintained by the business; understand all typical purchase and sales types in order to determine, broadly, the VAT liability likely to apply to them; detail current Accounts Payable (AP) and Accounts Receivable (AR) processes with respect to the receipt of invoices and the raising of invoices and consider what changes are likely to be necessary to accommodate VAT and how long these would take to implement; examining Enterprise Resource Planning (ERP) systems to ensure that they can cope with the charging and recovery of VAT – if an ERP investment is imminent, ensure that VAT compatibility is available in the new/upgraded solution; nominate a member of staff to monitor and take charge of the transition of the business into a VAT environment; and seek for professional advice/consulting where necessary in advance to ensure proactive action is taken.
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