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Vat introduction By Nuummite Consulting
The document provides a detailed overview of value added tax (VAT) and excise tax, including definitions, calculations, and regulations applicable to GCC member states. It outlines the impact of VAT on various departments, tax record requirements, exemptions, and implementation strategies for businesses. Additionally, it discusses excise tax on goods detrimental to public health and the environment, along with the associated rates.
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Vat introduction By Nuummite Consulting
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- 2. TABLE OF CONTENT ValueAdded Tax 3 Excise Tax 19 Approach to implement VAT changes 22
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- 4. What Departments AreAffected By VAT? Finance and Accounting Sales Procurement Marketing IT HR Warehouses and logistics
- 5. WHAT IS VALUEADDED TAX (VAT)? An indirect tax imposed at each stage of production and supply. In general, the ultimate consumer is the one who bears the full cost of this tax while the business collects and calculates the tax and pays it in favor of the state. A 5% is imposed on multiple production stages with the right to deduct taxes on inputs from taxes collected from production outputs. The tax is collected each stage of the economic cycle (production, distribution, consumption) Value added = Sale Price – Purchasing or Production cost
- 6. RecoveryRecovery VAT Calculation Factory Distributor Dealer/RetailerEnd consumer Cost including Customs Selling Price Cost Selling price No taxes 10,000 11,000 11,000 12,100 10% 10% Profit 1000 Profit 1100 10% 10% Selling price 10,000 1000 11,000 11,000 1100 12,100 5 % VAT VAT 500 50 550 550 55 605 Total 10,500 11,550 11,550 12,705 VAT is due at customs release
- 7. VAT calculation ona none taxable input None taxable product Cheese Factory Taxable product Sales Price 1,000 2,000 5% VAT VAT -- 100 Total 1,000 2,100
- 8. VAT %’s andtheir financial Impact 0% Amount Tax Return Impact 1,000 600 (30) 400 (30) 100 0 50 (2.5) 60 (3) 190 (35.5) Exempted Amount Tax Return Impact 1,000 630 370 100 52.5 63 154.5 5% Description Amount Tax Return Impact Revenues 1,000 50 Cost of Sales (Purchases) 600 (30) Gross Margin 400 20 Employees salaries and benefits 100 0 Marketing 50 (2.5) Rent 60 (3) Profit Before Depreciation (Total) 190 14.5
- 9. VAT DUE DATE/ TRIGGER Upon Product or Service Delivery Upon receiving cash Upon Invoice Issuance Reverse Taxation: Reverse taxation mechanism: When applied, the recipient of the goods or service declares all his purchases (VAT inputs) and the vendor's sales (VAT output) in his tax return. In this manner, both of which eliminate each other.
- 10. VAT SPECIAL CASES •-On consignment stock •- Gift vouchers and receipts •- Swapping debts with products •- Samples and gifts •- On account sales •- On installment sales •- Exports •- Annual Volume rebates •- Discounts •- Bonuses and free products •- Returns •- Products Swaps •- Advances Sales - Funds transfers and services rendered to group members - Returned products and goods - Damaged Stock Purchases - Identify expenses that are directedly linked to institute operations - Bad debts treatment - Rent - Imported Services Productive Expenses •- Fixed Assets •- Used Assets Capital Expenditures
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- 12. WHO IS REQUIREDTO REGISTER? Who? •A resident of any of the GCC Member States shall be taxable and bound to register Mandatory Limit • If the resident’s revenues reaches or is expected to reach SAR 375,000 or its equivalent of the currencies of the Member States. Optional Registratio n • 50% or (187500 SAR) of the mandatory registration limit or if the annual expenses including the value added tax to reaches this limit. Controls • A taxable person who makes taxable supplies at the rate of 0% is entitled to ask for exemption from registering for tax purposes in accordance with the regulations of each GCC country.
- 13. MEMBER COUNTRIES SaudiArabia Bahrain Kuwait The United Arab Emirates Oman Qatar
- 14. TAX RECORDS REQUIREMENTS The taxpayer must issue a tax invoice. Keep regular accounting records and books that record first-hand sales details and their collected value backed up with the correct documents and invoices. These records and copies of invoices must be kept for at least five years following the end of the fiscal year. Periodical supply of official tax returns forms to tax authorities
- 15. TAX PERIODS ANDREPAYMENT Tax period: Two calendar months starting from the first day of the first month and ending in the last day of the second month. Authorities may also make the tax period one month. Tax return submission and due amounts payment: mostly 15 days from the end of the tax period (not yet determined)
- 16. FINES AND PENALTIES None registration fine None submission or delay of submission of a tax return Delay in paying the due taxes on time None complying records Submitting false or misleading data Tax evasion
- 17. EXEMPTIONS FROM TAX According to article 30 of the GCC unified agreement and in accordance with the regulations determined by each country, the following entities are exempted from VAT: Government bodies as determined by each country. Charities and institutions of public benefit as determined by each country. Companies exempted under agreements to host international events. Citizens of the Member State when constructing their own homes for private use. Farmers and non-registered fishermen
- 18. CLASSIFICATION OF TRANSACTIONSSUBJECT TO VAT Business SectorTransaction Type MiningManufacturingGoods Subject to VAT Real EstateOil and Gas RetailerWholesaler TransportationLeasing ActivitiesServices subject to VAT InsuranceHotels ContractorsTelecommunication MediatorsProfessional Companies Classified as 0%Export HospitalsBasic financial services and banksExempt Transactions Government transactionsEducation What is exempted by means of an issued decree Basic Food items
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- 20. IMPACT OF VALUEADDED TAX ON CORPORATE OPERATIONS IT Systems Readiness Procurement and Services Multiple transactions Multiple tax treatments sales and marketing Pricing Contracts Effect of demand Commitment Registration - Periodic reporting of VAT Review tax authorities Financial management Cash flow - Exemption from tax input - Refund and repayment HR Policies and procedures Communication - Education and training of staff Business Company Structure - Competencies Reputation risk VAT Tax Challenges
- 21. THE IMPORTANCE OFEARLY PLANNING There are a number of key reasons why planning early and conducting this VAT impact assessment will benefit the institute: Identify limitations: review current business structures for VAT efficiency, resources, processes and system needs Get upfront legal views on the impact and the area where changes would need to be considered and develop a project plan to address the same Upfront VAT planning: Identify more VAT efficient operating and trading structures so as to protect financial margins that may be impacted by irrecoverable VAT costs and stay ahead of competitions on the pricing of products Secure reliable resources in advance to ensure smooth implementation which will in turn reflect I lower costs
- 22. THE IMPORTANCE OFEARLY PLANNING (CONT’D) Successful completion of this important project will require early planning considering the specifics of the industry in which the client operates as well as the need of the client. Consultant’s end-to-end implementation methodology will ensure timely execution and that proper testing is completed to ensure proper compliance at the level of each individual entity. The key objective of an early assessment and preparation is to give the client a good preliminary understanding of the impact of VAT on its business and the implications on the various sub sectors, processes, people and functions. Thus, the VAT readiness project will require a coordinated effort and contribution from the various departments/functions in client throughout the execution of the project.
- 23. END-TO-END VAT IMPLEMENTATIONAPPROACH Phase I VAT Impact Assessment Phase II Planning and Implementation Phase III Transition/Output Testing Phase IV Post- Implementation Assistance
- 24. FRAMEWORK FOR PROJECTIMPLEMENTATION Fact Finding •Supplier Contracts •Customer contracts •Stock and services master files •Customer invoices •Supplier invoices •Trial balance •Revenue transaction types •Expenses transactions types •System setup document •Intercompany transactions •GCC Imports Design •GAP Analysis •Identify risks •Action plan •System modification •Supplier coding •Customer coding •Reports and forms layout adjustments •Registration •Policies and procedures Verify •System design •Reports design •Forms design •Master data consistency Go Live •Tax filing •Process refining
- 25. OUR TEAM VAT auditors andadvisors with experiences exceeding 15 years Finance Managers and ERP experts Business owners and consultants in VAT practicing countries Accountants, Section heads and Managers in VAT environment
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- 27. WHAT IS EXCISETAX? Excise tax is imposed on goods that has bad impact on public health or the environment with the sim to reduce its consumption. Such goods include tobacco, soft drinks energy drinks and others Impose a progressive tax on some luxury goods (cars and gold jewelry, yachts and private jets) The Excise tax will be based on the final selling price specified by the factory or importer or a price Normative approach specified by the authority.
- 28. COMMODITIES SUBJECT TOEXCISE TAX AND THEIR PERCENTAGES 100% Tobacco and more 50% Gaseous Drinks 100% Energy Drinks