The Governments of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar (status unknown due to GCC politics/friction), Saudi Arabia and the United Arab Emirates that make up GCC - are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within the GCC, it is anticipated that the six member states will all aim for implementation of VAT during the period commencing 1 January 2018 or by the end of 2018.
VAT as a process will affect many aspects of businesses operating in the GCC and will require significant time to plan, and integrate into existing processes.
Setting the objectives
- To be ready in time and a need of an effective and efficient work process between Tax function, IT function and its third party consultants
- To optimize its VAT deduction and to automate this VAT process as much as possible in SAP
- To limit VAT risks and meet VAT reporting obligations (e.g. reverse charge mechanism to avoid non VAT compliance)
- To automate VAT processes via enhancing the SAP 'as is' functionality where possible
- Set up processes and controls when VAT automation is not feasible
- To test new SAP functionality prior to go-live (sandbox)
Based on above objectives the PDF document 'More detailed description of Work in booklet' established the scope, schedule and means of initiating the work to be performed by the service provider and describes or references the specifications, instructions, standards, and other documents, which the service provider shall satisfy or adhere to in the performance of the work.
The KEY Group is supporting one of the largest multinationals with the setup of the GCC VAT rules in SAP itself
There are in principle 2 important phases:
- Design a Business Blueprint outlining the implementation of VAT in SAP and supporting systems. Develop this blueprint through understanding and incorporating the GCC VAT law, Client's VAT strategy, detailed business requirements and current system landscape.
- Implement the blueprint in conjunction with the Client's IT team, including testing, training, documentation and go-live support. Develop the appropriate reporting for compliance with GCC VAT between Client's SAP system and government authorities.
Roadmap: implementation activities for SAP
Implementation activities in SAP IMG for VAT:
- Configure tax procedures for all relevant Gulf countries for VAT solution (Access sequences, Account Key/Condition, Country assignment)
- Create new required tax codes in SAP (transaction FXTP) for all relevant Gulf countries with required parameters
- Configure posting tax amounts based on created tax code for automated tax posting
- Create VAT condition records for all VAT relevant sales scenarios
- Define and update setting for VAT registration numbers
Implementation activities in SAP IMG for Excise Duty:
- To be defined based on the actual requirement: dependent on excise duty calculation/accounting based on sales quantity (comparable with VAT) or movement of goods
Activities related to pricing procedures/policy:
- Review all used pricing procedures
- Add required tax condition types to sales pricing procedures
Activities related to transaction output (billing documents):
Advise on changes to be made to print programs/output types: based on legal requirements:
- Invoice tax text messages (SO10)
- VAT registration number customer
- Tax rates and amounts
- Develop and draft documentation for the VAT solution in Gulf countries for SAP consultants (configuration documentation)
Develop and draft documentation for the VAT solution in Gulf countries for business users including rate changes, implemented VAT logic and VAT reporting
- Unit testing for VAT solution for all Gulf countries
More detailed description of Work in booklet below
Types of VAT GCC transactions
GCC VAT system follows most likely the EU model. From a design perspective the supply chain should be allocated to the following VAT GCC categories:
- Domestic supplies
- Deemed supplies
- B2B GCC intra supplies
- B2C GCC intra supplies
All supplies fall within three 'tax categories':
- Standard rated: VAT taxable supplies applicable to most goods and services
- Zero rated: VAT taxable supplies applicable to exported goods and services and according to the VAT Act certain appointed domestic supplies
- VAT exempt
Training material - How does VAT work
- EU VAT system a high level overview
- How VAT works
- VAT e-learning course
- VAT and business
- HMRC - VAT Guidelines
- EU Taxation and Customs Union - You Tube Channel
Common VAT Agreement of the States of the Gulf Cooperation Council
Common Excise Tax Agreement of the States of the Gulf Cooperation Council
Value Added Tax - Implementing Regulations Saudi Arabia
Chapters related to SAP and VAT
- ERP systems and tax engines
- When is standard SAP (in)sufficient?
- SAP and triangulation
- SAP and import, export and chain transactions
- SAP and plants abroad
- SAP checklist for VAT rate change
- Everything you always wanted to know about VAT in SAP * but were not aware to ask
- SAP implementation
- Tax engines questions to ask before you commit
- SAP and SAF-T Poland
- SAP and monthly SAF-T VAT file in Poland (JPK-VAT)
Written by Richard Cornelisse
Richard advises multinational businesses in improving the efficiency and effectiveness of their Indirect Tax Function and Tax Control Framework.
He started his career as a manager at Arthur Andersen and then became a partner in EY where I led the indirect tax performance team for Netherlands and Belgium. Currently he is a senior managing director of KEY Group.
Richard has over 20 years’ experience advising clients on international VAT issues. He is specialized in the tax aspects of financial transformations, shared service centre migration, and post merger integration work. Richard is also somewhat of a mentor, giving back to the profession. If you are interested in conversation and discussion, please feel free to contact him.