Being ready for GCC VAT introduction when operating SAP

Details: Written by Richard Cornelisse; Published: 14 December 2016; Hits: 6175

GCC

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

Documentation activities:

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

Testing activities:

Unit testing for VAT solution for all Gulf countries

More detailed description of Work in booklet below

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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
Import
Export

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

Common VAT Agreement of the States of the Gulf Cooperation Council

Common Excise Tax Agreement of the States of the Gulf Cooperation Council

Saudi Arabia - Value Added Tax - Implementing Regulations

UAE - Federal Decree Law No. (8) of 2017 on Value Added Tax

The law also defines the tax registration and deregistration, as well as mandatory tax registration, tax group, registration exceptions, tax registration of government bodies and voluntary registration.

Rules pertaining to supplies also include date of supply, place of supply of goods, place of supply of water and energy, place of supply of services, place of supply in special cases and place of supply of telecommunication and electronic services.

The law also outlines the place of residence of the supplier, place of establishment, place of residence of an agent, value of supply of goods or services, value of import, value of supply for related parties, value of deemed supply, tax inclusive prices, value of supply in cases of discount of subsidies, value of supply of vouchers, value of supply of postage stamps, temporary transfer of goods, as well as profit margins and calculating and charging tax based on the profit margin earned.

In addition, the law states the zero rates of supply and exemption, the supply of goods and services subjected to a zero rate, supply exempted from tax, single and mixed supply, specific obligations to account for tax which include reverse charge, import of concerned goods, designated zones, transfer of goods in designated zones and exceptions for designated zones.

The law summarises the calculation of due tax, recoverable input tax, capital assets scheme, adjustment of tax after the supply date, tax invoice, tax credit notes, tax period, tax returns and reclaiming of tax as well as carrying forward the excess of recoverable tax and tax recovery.

The law also stipulates the provisions of tax recovery, violations and penalties, tax evasion in addition to general provisions and closing provisions.

This Decree- Law will be published in the Official Gazette and will come into effect as of January 1 2018.

UAE VAT treatment in an one pager

Click picture to enlarge

Chapters related to SAP and VAT

Written by Richard Cornelisse
Richard LinkedIn

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.