A VAT Landscape in The UAE and The GCC

Headline Verdana Bold
VAT Implementation
VAT landscape in the UAE and the GCC
17 February 2017
Speaker
Profile
Marc Collenette
Manager,
Indirect Tax
macollenette@deloitte.com
2017 Deloitte & Touche (M.E.). All rights reserved. VAT Implementation 2
Agenda
Tax Reforms in the Middle East
Topic Content
Background Introduction to tax reforms in

the Middle East
VAT fundamentals VAT basics and mechanics
VAT impacts Common business impacts
A successful VAT Walking through the key

implementation components of an
implementation project
Background
Introduction to tax reforms in
the Middle East
4
Introduction to GCC Tax Reform
Todays news
The GCC Treaty Domestic Legislation
We understand that the Member States

Each individual country is also
have signed the common VAT Framework
expected to develop its own
Agreement that will set the main VAT
domestic legislation to implement the
principles to be adopted
Framework Agreement
UAE Kuwait
23 year implementation period is
Saudi Arabia Bahrain expected across the GCC countries
Qatar Oman following the signing of the
Framework Agreement, the GCC
Treaty
Certain sectors likely to be exempted

(e.g. healthcare and education)
Estimate of 94 zero-rated products
2017 Deloitte & Touche (M.E.). All rights reserved VAT Implementation 5
Introduction to GCC Tax Reform
Overview
Increasing Treaty UAE, KSA, Any

number of announced Oman remaining
statements implement countries
Domestic
of intent implement
legislation
issued
preparation
2016 17 18 19 2020
Any
remaining
Ongoing
planning
GCC
countries
countries
examine
All
behind the
scenes
examine
impacts
current
need,
countries
examine
decisions
implement
by 2020
It typically takes 18 24 months from the time a decision is

made to the implementation of a VAT system
Although it is not clear when VAT will be implemented in each of

the Gulf states, we can expect for progress to be fast
We expect a staggered implementation, with all members

working toward an agreed deadline, with some moving faster
2017 Deloitte & Touche (M.E.). All rights reserved VAT Implementation 6
VAT fundamentals
Mechanics of VAT
7
Mechanics of VAT
Introduction
VAT stands for Value Added Tax
VAT is a tax on the supply of goods and services
VAT is NOT a tax on profits or on payments
Most countries have VAT or an equivalent tax system

(e.g. GST or Sales/Use Tax)
Sales taxes can be either single-stage or multi-stage.

VAT is a tax on each stage of the supply chain
Mechanics of VAT
Think about it this way
.a VAT registered supplier in the course of its business makes a
VAT is chargeable
supply
whereVAT stands for of goodsAdded
Value or services
Taxin the UAE in return for consideration (e.g.
payment)
The W Issue
1 Who? Who is the supplier, and who is the customer?
VAT registered?
Overseas?
Are they acting in the course of furtherance of business?
2 What? Is it a supply of goods or services?

Is it one supply, or multiple supplies?
3 Where? The place of supply determines:
which jurisdictions VAT laws apply?

what VAT liability applicable (e.g. standard, zero-rated or exempt)?
4 When? When do I need to account for the VAT and/or recover the VAT as
the case may be?
In either case, what documentation do I need to satisfy the
authorities?
5 What Value? The value question VAT is determined by reference to the value of
the supply, the nature of the supply and the rate applicable to it
Mechanics of VAT
Output tax
Output
A business makes supplies of goods (or services) for 100
Output tax normally due on these supplies (unless exempt, zero-rated or outside the scope)
Supplier charges VAT (of 5) on the supplies (usually adds it)
Supplier accounts for the VAT by paying it to the tax authorities
Tax Authorities Price =100
goods
Supplier Purchaser, or Recipient
VAT = 5
VAT =5 paid
Mechanics of VAT
Input Tax
Input
VAT charged to a business on its purchases of goods and services
Paid to its supplier as part of the purchase price (price includes VAT)
VAT incurred for business purposes is input tax and is recoverable if it has been incurred in the
course of making taxable supplies
Evidence is required to claim input tax
Tax Authorities Price =100
goods
Supplier Purchaser, or Recipient
VAT =5 paid
VAT = 5 Input Tax credited
Mechanics of VAT
Worked example taxable supply chain
Sells Sells
goods goods
Manufacturer Retailer Customer

AED AED
20,000 + 30,000 +
1,000VAT 1,500VAT
Payment of AED Repayment Payment of AED

1,000 VAT (credit) of AED 1,500 VAT
1,000 VAT
Tax authority
Sale VAT charged on sale VAT recoverable Net payable to

on purchases tax authority
Manufacturer 20,000 1,000 - 1,000
Retailer 30,000 1,500 1,000 500

VAT borne by customer? 1,500
Mechanics of VAT
Input tax deduction and recovery
Input Tax
Standard-rated (5%)
Credit (ITC)
Taxable Supply
Zero-rated ITC
Exempt No ITC
Non-taxable Supply
Out-of-scope Possible ITC
Mechanics of VAT
Worked example exempt supplies
Sells Sells
goods services
Supplier Bank Customer

AED AED
20,000 + 30,000
1,000VAT
- No VAT
charged
Payment of AED No repayment
1,000 VAT (credit)
Tax authority
Sale VAT charged on sale VAT recoverable Net payable to

on purchases tax authority
Supplier 20,000 1,000 - 1,000
Bank 30,000 0 0 0
Customer 0
Mechanics of VAT
Accounting for VAT
VAT incurred on costs
Recoverable Cannot allocate Irrecoverable

directly
Taxable supplies Exempt supplies
Taxable & exempt supplies e.g. overheads

Mechanics of VAT
Accounting for VAT
VAT incurred on costs
Cannot allocate
directly
Mechanics of VAT
Accounting for VAT
Businesses act as unpaid tax collectors and account for and

Accounting and pay VAT monthly or quarterly usually (electronically)
payment Errors can lead to significant penalties (throughput is important)
Tax authorities undertake risk-based audits to detect error and

fraud
100 + 5 VAT VAT return and payment processes

Payment
A Supply B AP data
VAT invoice
AR data VAT Return
Expense $ Payment/
data/other Refund request
Tax Authority performs basic data checks and carries out audits
Mechanics of VAT
Accounting for VAT
VAT returns submitted periodically together with payment

VAT returns Normally three months or monthly
Authorities sometimes have discretion to accept alternatives
VAT return submission and payment determined country by

country
Electronic VAT return submission and payment possible in most

countries
Additional reporting requirements could arise for intra-GCC

trade
Incorrect, incomplete or missing VAT returns = Tax

authority estimation
Penalties
Penalties for errors or failure to file and/or pay likely, and likely
to be significant
Mechanics of VAT
Place of supply
Place of supply rules will determine the country in which VAT is chargeable
Goods
Basic rule: is that the place of supply is the location of goods when the supply takes place
Services
Basic rule:
Business to Business (B2B) - place of supply is where the recipient belongs
Business to Consumer (B2C) - place of supply is where the supplier belongs
Mechanics of VAT
Reverse Charge
UK company supplies legal services to UAE company
Value of services = AED 4,000
UAE company remits AED 4,000 to UK company
UAE company accounts for VAT under the reverse charge:
Output tax charge of AED 200
Input tax deduction of AED 200 (subject to normal rules and assuming fully recoverable)
Legal services
UK UAE
Co. 4,000 AED Co.
O/T = I/T =
200 AED 200 AED
Reverse charging =
same result as if
purchasing locally
Tax Authority
Mechanics of VAT
Time of supply
The time of supply determines the tax point
This fixes the time at which VAT registered businesses are required to account for the
VAT on the supplies they make
The tax point should be stated on the VAT invoice
There can be more than one tax point for a supply
Continuous supply of services, payment or invoice issued
2 1
Advanced tax Basic tax
point point
Payment Supply
Invoice
Goods are made
available to customer
Services are performed

VAT Impacts
22
VAT Impacts
general impacts
Tax points after implementation date? Requirement to charge VAT

Long term
contracts Unless grandfathering
Is there a contractual right to charge VAT?
Prices presumed to be VAT inclusive unless a VAT clause is included
If no ability to charge VAT in addition, the VAT becomes a cost to

the supplier
Will businesses increase prices by 5 percent (provided the contract

allows it)?
Pricing
Market sustainable pricing? Will businesses absorb some of the
cost
Competitive environment in the lead-up to the introduction of VAT
Even if VAT is recoverable businesses will need to consider the cost

of pre-financing VAT on purchases prior to recovering on the next
Cash flow VAT return
VAT Implementation
Impacts across the value chain
Systems review and
changes for VAT
End of current business tariffs
compliance
and charges
Preference for VAT Vendors to
Effect on demand
maximise ITCs
Pricing strategies Information Use of self-billing/other billing
Impact on current System best practices to maximise
pipeline and inventory credits
Sales &
Suppliers
Marketing
VAT impact on contracts Pricing modelling

Current contracts Structure of
Future contracts Legal VAT system offers/financing
Customers
requirement Support
mechanisms and
incentives
Finance &
Strategy Administration
Internal /
VAT impact on corporate plans e.g. Human Impact on cash flow
restructuring, new projects and Capital Identification of transactions and VAT liability
transactions Maximisation of VAT input tax credit on
Clarification of issues and purchases
Education and
treatment with tax authorities Registration & compliance
communication
Interaction with your Supply Chain Need to be more involved
training
VAT implementation
a successful project
25
VAT Implementation
An overview of our approach - The 5 Phases
Phase 2: response Phase 3: to-be planning Phase 4: Phase 5: post-

Phase 1: Impact assessment
strategy & roadmap & preparation Implementation & test Implementation review
We look at your business as We work with you to This phase represents a major To ensure they key objective of We help the business in reviewing
a whole and examine how it develop an appropriate part of our overall joint effort. VAT compliance is achieved, we the first VAT return to ensure that
may be impacted from a response that the business We first assist you to define the assist in training staff on their reflect the desired results. We
Our work
VAT perspective across should adopt with respect to program of change to be new obligations so that they make use of various techniques of
three key dimensions its new operating effected in an orderly manner know how to use the new testing, and in some cases may
(people, processes and environment. We work with and then in implementing the documents and processes that use data analysis to review the
technology) and in respect you to plan this out so that changes and prepare for the has been implemented. We return so that the risk to that
of three key challenges you know what you need to new operating state. We also assist with testing the changes correct VAT position has not been
(organizational, operational do when and, importantly, address the key documentation to establish whether they are fit adopted in the returns submitted
and financial) how you need to go about it that is required subsequently for purpose to the authorities is minimized
Business Leader Response VAT technical Review of first VAT

Project plan position summary
Workshop strategy return
Relevant business Transaction Internal VAT Post-implementation

Roadmap mapping & process governance manual training (optional)
Our deliverables
facts summary
re-design
Systems Training plan and
VAT impacts
requirements bespoke modules
summary
matrix
Cash-flow & pricing Test review

analysis (optional) observations and
technical support
Document
IT configuration
templates
This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application
of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain
professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte & Touche
(M.E.) would be pleased to advise readers on how to apply the principles set out in this publication to their specific
circumstances. Deloitte & Touche (M.E.) accepts no duty of care or liability for any loss occasioned to any person acting or
refraining from action as a result of any material in this publication.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (DTTL),
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3,300 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International
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2017 Deloitte & Touche (M.E.). All rights reserved.

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Headline Verdana Bold

Background Introduction to tax reforms in

VAT fundamentals VAT basics and mechanics

VAT impacts Common business impacts

A successful VAT Walking through the key

The GCC Treaty Domestic Legislation

We understand that the Member States

Certain sectors likely to be exempted

Estimate of 94 zero-rated products

Increasing Treaty UAE, KSA, Any

It typically takes 18 24 months from the time a decision is

Although it is not clear when VAT will be implemented in each of

We expect a staggered implementation, with all members

VAT stands for Value Added Tax

VAT is a tax on the supply of goods and services

VAT is NOT a tax on profits or on payments

Most countries have VAT or an equivalent tax system

Sales taxes can be either single-stage or multi-stage.

2 What? Is it a supply of goods or services?

3 Where? The place of supply determines:

which jurisdictions VAT laws apply?

A business makes supplies of goods (or services) for 100

Supplier charges VAT (of 5) on the supplies (usually adds it)

Supplier accounts for the VAT by paying it to the tax authorities

Tax Authorities Price =100

VAT charged to a business on its purchases of goods and services

Evidence is required to claim input tax

Tax Authorities Price =100

VAT = 5 Input Tax credited

Manufacturer Retailer Customer

Payment of AED Repayment Payment of AED

Sale VAT charged on sale VAT recoverable Net payable to

Retailer 30,000 1,500 1,000 500

Out-of-scope Possible ITC

Supplier Bank Customer

Sale VAT charged on sale VAT recoverable Net payable to

VAT incurred on costs

Recoverable Cannot allocate Irrecoverable

Taxable supplies Exempt supplies

Taxable & exempt supplies e.g. overheads

VAT incurred on costs

Businesses act as unpaid tax collectors and account for and

Tax authorities undertake risk-based audits to detect error and

100 + 5 VAT VAT return and payment processes

AR data VAT Return

VAT returns submitted periodically together with payment

Authorities sometimes have discretion to accept alternatives

VAT return submission and payment determined country by

Electronic VAT return submission and payment possible in most

Additional reporting requirements could arise for intra-GCC

Incorrect, incomplete or missing VAT returns = Tax

Business to Business (B2B) - place of supply is where the recipient belongs

Business to Consumer (B2C) - place of supply is where the supplier belongs

UK company supplies legal services to UAE company

Value of services = AED 4,000

UAE company remits AED 4,000 to UK company

UAE company accounts for VAT under the reverse charge:

Output tax charge of AED 200

The time of supply determines the tax point

The tax point should be stated on the VAT invoice

There can be more than one tax point for a supply

Continuous supply of services, payment or invoice issued

Services are performed