VAT is being introduced in the GCC states during 2018

VAT is likely to be introduced across the GCC states January 1, 2018. The framework agreement is expected to be in place shortly and the anticipated rate is 5%.

The reason for the introduction is to provide the GCC states with a new source of income, which will contribute to the continued provision of high quality public services, including hospitals, roads, public schools, parks, waste control, and police services, into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

Businesses in the region will be responsible for carefully documenting their business income and costs and associated VAT charges. Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods / services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

“Invoicing and trading complexity increases significantly for businesses that need to comply with the new VAT rules.”

VAT implies increased invoicing and trading complexity

Invoicing and trading complexity increases significantly for businesses that need to comply with the new VAT rules. Suppliers and vendors must correctly configure VAT processes in their financial systems and send and receive invoices with the correct VAT rates. Additionally, AR and AP processes must be adapted to ensure the effective application of VAT, which leads to a significant increase in manual activities such as validations, error handling, production of customer and vendor statements and of course VAT filings.

Receiving and sending invoices that contain VAT requires AR and AP teams to have an excellent knowledge of applicable VAT rates. VAT treatment for cross border invoices raises additional complexities, as VAT may or may not need to be included, or it may need to be included at the VAT rate of the country where goods are being supplied.

Many reasons for headaches

Invoices often require VAT specified on a line level, a difficult task to handle for many suppliers and customers with less advanced financial systems. Also, VAT may be taxable at different rates depending on the product or service and some goods might be exempt or zero-rated.

Other factors that increase VAT headaches are:

  • Legacy financial systems may not be able to handle new VAT schemes, or at the very least it may be difficult to configure without the necessary expertise and vendor assistance.
  • The market demand for knowledgeable VAT ‘experts’ will be high and the supply will be low, driving resource shortage and increasing costs.
  • There may be uncertainty about the requirements for VAT scheme compliance and mechanics.

Significantly reduced VAT challenges with Pagero

Adopting Pagero Online for e-invoice handling allows you to send and receive all your invoices electronically either via our web portal, or directly into / out of your ERP system – regardless of the capabilities of your trading partners. Suppliers, for example may send invoices automatically from their systems, via our web portal, or through email to Pagero Online where the ‘manual’ documents are translated into an electronic format.

“Pagero has extensive experience in VAT operations in many markets around the globe with complex regulatory frameworks.”

Ease the burden even more with validation, enrichment, e-archive and reports

We offer a range of extended services that help businesses simplify VAT handling even more:

  • Pagero’s invoice validation service allows you to practically eliminate error management. You create a set of validation rules that invoices must meet, such as having valid VAT rates. If the invoice does not fulfil requirements, it is not forwarded to you and must be corrected by the supplier, before it is resent.
  • Pagero’s invoice enrichment service automatically convert or add data on inbound invoices to meet your systems’ VAT handling requirements. Likewise, outbound invoices can be automatically enriched to meet customer requirements. For example, some ERP systems require VAT codes, rather than VAT % rates when entering invoices. In other cases, you may receive invoices with VAT rates provided on a header level, when the ERP requires them on a row level.
  • Pagero’s e-archive service ensures all e-invoices are retained in an archive for the period required by VAT regulations. It is possible to search and retrieve any document quickly, for instance using document number, recipient, issuer and creation date. This assists reporting and auditing processes.
  • It is also possible for VAT reports to be generated on your transactional data within Pagero Online, if your own systems cannot provide such reports.

Experience of handling complex regulations on an international level

Pagero has extensive experience in VAT operations in many markets around the globe, where e-invoicing is standard practice and we have helped many clients meet VAT trading and compliance requirements in a large range of different countries with complex regulatory frameworks.

Want to know more? Please visit our website www.pagero.com or contact the author directly for further details on how we can help you hand the upcoming VAT regulations in the GCC states!

Useful links:

http://gulfnews.com/business/economy/what-gulf-businesses-need-to-do-to-get-ready-for-vat-1.1985618
http://www.pwc.com/m1/en/media-centre/2016/gcc-companies-should-take-action-now-to-prepare-for-vat-and-excise-tax.html
http://newsweekme.com/business-outlook-gcc-introduce-vat/
http://taxinsights.ey.com/archive/archive-news/gcc-ministers-of-finance-meet-to-approve-introduction-of-gcc-vat.aspx
https://www.mof.gov.ae/En/budget/Pages/VATQuestions.aspx