VAT ADVISORY AND IMPLEMENTATION

Transcription

1 VAT ADVISORY AND IMPLEMENTATION

2 1.B4SH BACBABBA7D Client and Project Background Legal Framework for VAT Key Considerations

3 LEGAL FRAMEWORK FOR VAT IN THE KSA GCC Agreement (finalized and published) Sets broad principles and some mandatory elements for VAT in GCC Each state responsible for its own implementation and enforcement VAT Law (final law published) Primary legislation for VAT in KSA which gives effect to GCC agreement Sets out implementation and compliance enforcement framework for VAT VAT Implementation Regulations (final regulations published) Secondary legislations which provide additional rules and laws for interpretation of GCC Agreement and VAT law Tax Rulings (as and when required) 3

4 Value Added Tax (VAT) Model Manufacturer (SAR VAT 40) Distributor (SAR VAT 45) Retailer (SAR VAT 50) Consumer Landed Cost SAR 1050 SAR 40 SAR 45 SAR 40 SAR 50 SAR 5 (SAR 45 SAR 40) SAR 5 (SAR 50 SAR 45)

5 Vat Impact in KSA Tax to the Sales Price 5% VAT Credit Government Manufacturer to Wholesaler Net Taxable Price Wholesaler to Retailer Net Taxable Price 110% Retailer to Consumer Dealer Net Taxable Price 110% Total

6 Chapter two Registration Who has to register? or eligible to register in the Kingdom Saudi Arabia Chapter 2 Article 2 Taxable person is a person Who does economic activity independently Who generates income Registered under VAT Or who is required to register under VAT Chapter 2 Article 3 Read with article 50 of GCC agreement Mandatory registration When Supplies exceed Registration Threshold limit of total supplies of SAR OR about to cross. Person has to calculate supplies every month plus till past 11 months(for 12 months) Apply immediately when about to cross Threshold limit To apply with in 30days It will be applicable from next month when cross limit Chapter 2 Article 4 Read with article 50 of GCC agreement Mandatory registration Estimated expected future supplies of SAR Or to estimate supplies of future 12 months Apply immediately when about to cross Threshold limit To apply with in 30days It will be applicable from first month expected Chapter 2 Article 5 Mandatory registration for Non-Residents To pay TAX From First supply made Or received in KSA From 1 inward Or outward supply in KSA Apply immediately To apply with in 30days of the first supply. Applicable from 1 day Chapter 2 Article 6 Read with article 12 Mandatory registration Other provisions When person has failed to make application TAX authority can register immediately With out application Next month when crosses limit OR about to crosses. Later or Earlier date may be allowed. Chapter 2 Article 7 Read with article 51 of GCC agreement Voluntary registration Estimated expected future 12 months supplies or expenses of SAR (50% of mandatory threshold) Or When Supplies for previous twelve months exceed voluntary Registration Threshold Application before or after crossing Threshold limit May be registered for earlier or future date

7 Chapter 2 Article 8 DOCs required to register next page Registration application has to contain the following minimum information: ( Chapter 2 - Article 8 ) 1. Official name of the legal Person Or if Neutral person then Name with ID info. 2. Address of Office & business place 3. address & Contact mobile number 4. Electronic identification number if available - In KSA ID documents are mandatory for all citizens aged 15 and over. 5. Commercial registration number if any - Detailed information about organization performing commercial activity 6. Value of Annual supplies Or expenditures of last year ( Jan to Dec) 7. Effective Or any other alternative requested date of registration 8. Any other info required by Tax authorities to be given with in 20 days if asked for. Chapter 2 Article 9 -Specific provisions for Registration Exclusive ZERO rated supplies Related persons 2 Or more NR person itself Or its tax representative get approved Are exempted form Registrations If carry on similar or related economic activities Change in tax representative as per article 77 is to be notified with in 20 days But can be registered voluntarily Annual Supplies be added within a specified duration, and combined figure be used as each Person s annual Supplies value.

8 Rates and Input Credit mechanism 5% Input Tax Deductible Out of Scope (Entities + Type of Transactions + Supplies) Exempt Non Deductible Standard Rate GOVT Or activities of Government and Public authorities (article 9) Employer, Employed or contracted persons where there is relation of employer & employees with remuneration (article 9) Transfer in the same entity or group entity (article 18) Issue or Supply of Voucher (article 19) Finance Services including Life Insurance (Article 29) Lease or license of Residential Real Estate (Article 30) 0% Input Tax Deductible Exports of Goods from KSA (Article 32) Services Provided to Non-GCC Residents (Article 33) Transportation services for Goods or passengers outside the Kingdom and Supplies relating to transportation (Article 34) Medicines and medical equipment (Article 35)

9 In Kingdom of Saudi Arabia Chapter Article 5% ZERO Exempted Out of VAT Supply of medicine & medical equipments Qualifying Medicines / Medical Goods by Health committee rate/ 35 ZERO MDMA Listed SFDA Listed Private Health Care 5% ZERO MDMA Listed SFDA Listed Internal (intra - GCC) / international Transportation rate/ 34 ZERO Domestic Transportation in KSA - recreation or private use 5% Private Education 5% Commercial Real Estate 5% Supply / Sale residential of Real Estate 5% Supply to own or close relative use Rent residential of Real Estate 5 30 Exempted Use by own or close relative Supplies of investment in gold, silver, and platinum rate / 36 Export out side GCC Includes Services financial services. To export with in 90 days. Docs evidences - Customs /commercial invoice / Docs of place of Delivery & transportation rate / 32 For goods /33 For Services Basic Food Items 5% ZERO ZERO Oil, Oil derivatives & GAS 5% Domestic Financial Services- Explicit Fess Goodwill Or Commission or commercial discount Life insurance, Capital Market Activity, Margin 5 29 Exempted 5%

10 VAT Periodical Compliance Upto SAR 40MM Above SAR 40MM Filing frequency: Quarterly First filing period: Jan Mar 2018 First filing deadline: 30-April 2018 Filing frequency: Monthly First filing period: Jan 2018 First filing deadline: 28-Feb 2018

11 2. SCOPE OF WORK Scope of Work Roadmap & Envisaged Approach Deliverables and Timelines

12 SCOPE OF WORK Objective To assist the Client by providing VAT advisory and implementation support. Saudi Arabia is shifting to a VAT regime form 1 st January 2018 and all companies doing business in the Kingdom need to register for VAT by 20 th December 2017 and start complying with VAT with effect from 1 st January VAT Impact Analysis Overall VAT Implications on company Pricing, Costing, Profitability and Cashflow VAT implications Purchase side VAT implications Sales side VAT Implementation Scope Assistance in VAT Registration Identifying Items on which VAT is applicable/ not applicable Change required in accounting practices forvat General information required to capture forvat filing Invoice and other templates incorporating VAT and related information required for VAT filing Post Implementation Support Filing support for 3 cycles of VAT filing to ensure that the Client achieves self-competence 12

13 Key Outcome Activity ROADMAP FOR VAT IMPLEMENTATION Action plan PHASE-1 PHASE-2 PHASE-3 ImpactAnalysis Implementation Post Implementation Support As is Study Registrations Day to day queries Suggesting Tax Optimization Scenarios Drawing Change Management Roadmap Policy and SOPs Team Training System Integration support Handholding team through 3 monthly cycles of VAT filing from an offshore basis Impact in costing / pricing / cashflow due to VAT Objective decision making for optimizing the tax impact Approved implementation roadmap Clear operating guideline Team sensitization ERP requirement mapping ERP UserAcceptance Testing (UAT) ComplianceAssurance Online issue resolution System related feedback generation 13

14 ENVISAGED APPROACH Phase 1- Impact Analysis Key goals under impact analysis is to assess the impact of VAT on product costing/ pricing/ cashflows and developing alternatives for optimizing tax outflows. Key activities during this phase include: Collection of information related to product categories, delivery structures, contracts, classifications, etc. As is study to assess the impact of VAT on product costing/ pricing/ cashflows/ tax outgo, etc. Developing alternatives for optimizing tax outgo through change in delivery structures, change in contractual understanding, change in transaction structures, etc. Discussions with management on findings of the As is study and the alternatives assessed above Preparation of implementation roadmap based on findings and discussions with the management Phase 2- VAT Implementation Major goals under this phase include providing assistance in VAT registration, Policy and SOPs, Team Training and System Integration support. Key activities during the this phase include: Advising on the requirements for VAT registration and assisting the Client in the registration process Catalyze the decisions about managing credit from VAT for smooth transition, transaction models, teamrejigs, system rejig, budgets, etc. Catalyze approval of the change management roadmap Roll out the trainings to the core team with regards to VAT and relevant process changes 14

15 ENVISAGED APPROACH (CONTD ) Phase 2- VAT Implementation (Contd ) Provide templates, vendor education, training and outreach for smooth flow of input taxcredits Design the relevant templates from gate pass to invoice, update SOPs Coordinate with the ERP vendors or the support partner for rolling out the process level changes Creating a clear requirement and project manage the changes in the systemsparameters Doing User Acceptance Testing from VAT perspective Handholding implementation of determination tool in cases where there are multiple systems and wherein the auto logic is not working in the current system Phase 3- Post Implementation Support The envisaged goal under this phase is to handhold the team through 3 monthly cycle of VAT filing so that they achieve self-competence on the same. Key activities under this phase include: Train the in-house team on VAT filing requirements Handhold the team through three cycles of VAT filing Review the errors and mismatch possible Suggest further changes in various aspects like systems, vendor relations, processes (if any) 15

16 DELIVERABLES AND TIMELINES Deliverables The key deliverables for the various phases are summarized below: Impact analysis report Templates for Invoices and related SOPs Training material The deliverables will be submitted in electronic format and all deliverables will be in English language only. Timelines The VAT advisory/ implementation shall take around 8 weeks across the project time-frame. Our initial estimate of timelines for various stages is depicted below. Please note that the timelines provided are not contiguous but would be spread across the overall project time-frame leading up to the company registering for VAT and filing 3 monthly returns Activity Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Impact Analysis VAT Implementation Post Implementation Support With regard to the above deliverables and timelines, please note that following: The timeframe indicated for the submission of deliverables factors in prompt receipt of information from the Client, provision of inputs in a timely manner and quick turnaround of queries/ interim draft deliverables. Delays at the Client s end on any of these aspects could lead to the timelines getting stretched. Client s support may be required for securing visas for the VAT Consultant team members undertaking field visit to Saudi Arabia. Any inordinate delay in securing visas could impact the execution timeframe indicated above. 16

17 SCOPE ASSUMPTIONS AND EXCLUSIONS The scope of services is limited to providing VAT advisory and implementation support to the Client as detailed in the scope of work. Technical coding and mapping of the changes in the ERP system doesn t form part of the scope of the assignment. However, the VAT Consultant shall coordinate with the ERP vendor/ partner/ internal IT team for rolling out the process level changes in ERP and the UAT testing. Software licensing costs for any kind of software required to be used in the process of impact analysis, invoicing, determination, implementation, compliance, etc. is not included in the professional fee for this engagement. The same (if required) would need to be purchased by the Client. Furthermore, providing hardware and networking support doesn t form part of the scope of services for this engagement. It is understood and assumed that there is centralized accounting system and all the accounting information will be available centrally from Head office/corporate office for all the relevant periods. Furthermore, all accounting records/ agreements/ contracts will be made available in English Language. All communication and trainings will be in English language. In case of any translators are required for communication with core team the same will be arranged by the Client. Furthermore, the trainings will be provided at a centralized location. Timely execution of the project assumes prompt receipt of information from the Client and availability/ access to relevant executives for discussion. The VAT Consultant further assumes that the Client would nominate a coordinator to ensure access to and smooth flow of information as well as to undertake the required internal co-ordination to ensure availability of relevant executives for discussions. The VAT Consultant shall rely on the information and explanations given during the course of execution of the assignment and shall not be responsible for implications of any incorrect, erroneous, or delayed information. The VAT Consultant reserves the right to amend its observations, workings and conclusions after any new/ rectified information is made available. 17

18 KEY CONSIDERATIONS FOR VAT IMPLEMENTATION Assess costing Re-design Processes Supply Chain Tax & Finance Complete registration formalities Plan for transition to new law Plan for the change in cashflow Design compliance calendars Add relevant tax clauses in relevant agreements Validate critical documentation and formats Collect Customer VAT Data Restructure at existing contracts Sales & Marketing VAT Impact Areas IT Systems Update VAT data in vendor / customer masters Update Inventory masters with tax class and rates Develop document formats for Invoices / debit note / credit notes Design relevant statutory Human Capital reports for VAT filing and record keeping Re-skill / recruit / outsource Assess and change the division of responsibility with respect to VAT 18

19 19 PROJECT TEAM VAT Team Engagement Leadership Technical Partners High level Technical Leadership Project Team Understand, IT support and Project Management Technical Team Domain support Compliance Team Registration and Filing Support

20 Why APMH? In-depth GST implementation experience for India Specialized Tax Content Team Tax Firm Since 1985 Thoughtful and Experienced Ecosystem Committed point of contact for each client relationship Trained Offshore Compliance Team Full-fledged IT implementation Team

21 21 CLIENTELE SPREAD ACROSS VARIETY OF SECTORS & OWNERSHIP STRUCTURES.. Multi- Nationals Trading and Distribution Manufacturing and Ancillaries VC / PE Funded Banking Logistics Construction and Real-estate Family Owned SAAS Engineering Hospitality Broking e-commerce Startups Small and Medium Large

22 CA Mitesh Katira Partner APMH Deepak Pasad Senior Manager APMH Madhav Wagle Senior Consultant APMH Profile Brief Mitesh is a Chartered Accountant and a ISA qualified with specialisation lies in Business Advisory Services with more than 15 years of experience. Mitesh has been focusing on Internal Compliance Audits, Outsourcing and GST implementation. He has been helping corporate and Multinationals on GST Impact Analysis, Implementation and Compliance. Mitesh has been convenor for Information Technology Committee of the CTC i.e., Chamber of Tax Consultants. He is also a part of IT committee of the WIRC of ICAI. Mitesh has also been a Convenor Ghatkopar C A CPE Study Circle. Specializations of the Profile Brief Deepak has more than 15 years of experience in the field of tax consulting and compliance. Deepak has been handling complex consulting matters with regards to VAT, Service Tax and now GST for India. He has been learning, understanding and writing on the VAT implementation in the GCC region, mainly Saudi Arabia and UAE. Apart from tax, Deepak has deep understanding about the tax technology and tax processes. He has been advising clients with the detailed master, format, process and reporting changes in the ERP to maintain and extract reports from the ERPs like Tally, SAP, Bhalcon, etc. Specializations Profile Brief Madhav is senior GST consultant. Madhav has been handling clients with complex business models in GST compliance management. experience His vast in the indirect tax while working for 37 years in Color Chem which is now known as Clarinet mainly in excise, SCM and SAP is coming handy for consulting on the GST matters. Madhav has been handling corporate clients in and around Roha MIDC as well as Mumbai, with respect to GST consulting and compliance from APMH Roha office. Madhav has been studying and developing content for consulting VAT for corporates and multinationals in GCC region, mainly Saudi Arabia and UAE. Specializations VAT Implementation VAT Transaction advisory VAT compliance outsourcing Corporate Training Process Implementation Education and Certifications Chartered Accountant DISA - ICAI FAFP ICAI Certified trainer india GST by ICAI VAT consulting VAT opinions IT implementation for VAT Corporate Training Education and Certifications Chartered Accountant DISA ICAI IT system advisory VAT IT system advisory VAT VAT compliance management VAT process designing 22

23 mitesh@apmh.in Mob : Web : 23