Author: Thomas Vanhee

VAT

KSA releases VAT law

KSA releases VAT law

The Implementing Regulations provide much more detail on how VAT will actually apply in the KSA. The draft VAT law was unique in its design as it referred back to the VAT Agreement concluded between the six Member States of the Gulf Cooperation Council. It did not provide the basis for domestic taxation, deviating in its design from international standards around the design of tax laws and potentially even deviating from its own Constitution, the Saudi Basic Law.

The detail in the Implementing Regulations is important for businesses preparing for the implementation of VAT. They now at least have a sense of the direction the KSA is choosing in implementing VAT. For example, more details are given with respect to how tax payers can register, what kind of documentation is required for GCC supplies, but also how tax payers who have exempt supplies can deduct input VAT and to what extent expenses with respect to vehicles can be deducted. The Implementing Regulations are still subject to final amendments after the public consultation process.

The publication of the Implementing Regulations is another step in the process towards the implementation of VAT in the KSA on 1 January 2018. Insofar as Saudi businesses have not started preparing for the introduction of VAT, it has now become high time to do so, as preparations are time consuming.

VAT

How real estate businesses will be hit by the introduction of VAT

Post author By Thomas Vanhee
Post date July 24, 2017
No Comments on How real estate businesses will be hit by the introduction of VAT

How real estate businesses will be hit by the introduction of VAT

Real estate usually occupies a special place in VAT legislation benefiting from deviating rules, introducing complexity in the operations. Instead of following the general rules, often VAT is applicable in a different country, or the transaction may be exempt from VAT or subject to a zero percent rate, instead of just subject to VAT.

For instance, regardless where vendors or customers are located, for VAT purposes sales or purchases with respect to a building will mostly be subject to VAT in the country where the building is located.

Whether the transactions will actually be taxed will depend on the domestic tax legislation of the country where the building is located. The Member States of the GCC are allowed to implement VAT with respect to real estate in a different way and are expected to do so. The UAE is expected to zero rate the first sale of a new building whereas KSA is not expected to do so. Both would exempt residential rent and tax commercial rent.

Property developers or rental companies face costs which generally bear 5% VAT. Their output however will not necessarily bear VAT, as shown in the examples above.

Specific agreed payment terms need to be taken into account when assessing the application of VAT, since working capital will be particularly hit. Indeed, VAT may be due before the customer has actually paid.

As mentioned above, the lease or letting of property could be exempt from VAT in certain circumstances. The developer or constructor may also wish to change the destination of the developed goods. Mall managers also have their specific issues because of the specific terms in the agreements they conclude with their tenants.

Taking into account the date set for the implementation in KSA and the UAE, (1 January 2018), it is high time for real estate businesses to determine their strategies for the implementation.

UAE VAT

VAT adds complexity to customs

Post author By Thomas Vanhee
Post date June 10, 2017
No Comments on VAT adds complexity to customs

VAT adds complexity to customs

The Gulf Cooperation Council applies a unified Customs Law since 2002. The same GCC Member States have signed an Agreement to implement VAT. The VAT legislation will apply on imports and supplies of goods, amongst others also on supplies of goods between the Member States of the GCC.

Contrary to customs duties though, VAT on imports is recoverable. Customs duties are paid to the Customs authority and import VAT usually follows the same procedure.

Holding compliant customs documentation will now however become even more important since the tax authorities will require importers and exporters to hold compliant documentation. Any customs suspension and associated procedures (e.g. warehousing) will also be followed by the tax authorities for VAT purposes. In other words, getting it wrong will not only impact customs duties but also VAT, increasing potential risks.

Since the GCC Customs Union works in a more complicated way than for example the Customs Union in the European Union, this complexity trickles through in VAT. This is compounded by the fact that not all GCC Member States will implement VAT at the same time.

Pending the implementation of VAT in the UAE and KSA on 1 January 2018, a mapping of the supply chain is required in order to qualify each and every single transaction for VAT purposes and determine what the invoicing, reporting and compliance requirements are. The implementation of these transactions in the IT systems will be the most time consuming process. Although a lot of the legislation is yet to be published, businesses should and can already start preparing.

GCC Tax Int'l Tax & Transfer Pricing

Identifying indirect tax hurdles for your supply chain

Post author By Thomas Vanhee
Post date June 10, 2017
No Comments on Identifying indirect tax hurdles for your supply chain

Identifying indirect tax hurdles for your supply chain

When setting up or reviewing their supply chain, businesses seek the most (cost) efficient and lean way for the cross-border movement of their goods. However, when performing this exercise, the indirect tax and regulatory requirements should be duly taken into account in order not to create any unforeseen or hidden (financial) risks.

For example, companies and supply chain experts continuously needs to ask themselves the following questions. Are all the required documents and certificates in place to import goods into a certain country? Are my products classified correctly for customs purposes? How is the taxable base for customs and import VAT calculated? Are there any related-company transactions and have these been taken into account for customs valuation? Are the incoterms in line with the contractual agreements and supply chain reality? How is the preferential and non-preferential origin of my product managed? Are there international sanctions and restrictions related to my products, my business partners or the country of destination? Etc. Non-compliance with the applicable regulations and formalities could lead to severe financial penalties imposed by the Customs and VAT Authorities. But next to the direct cost, companies should also be aware for the indirect financial implications as the cost of supply chain disruptions due to blocked or seized goods cannot be underestimated. In the world of international and cross-border trade, one catch phrase sums it up quite nicely: “if you think compliance is expensive, try non-compliance!”

Luckily, local legislations and international agreements have foreseen in various possibilities and legal tools not only to mitigate the risks, but also to establish an efficient customs and supply chain setup. With sufficient in-depth knowledge of the business combined with legal expertise, asking the right questions allows you to seize short term opportunities.

Are there optimizations possible through product classification or valuation of the import transaction? Am I using the full potential of international free trade agreements? Can I shift costs and responsibilities to my business partner through the use of Incoterms? Are there special customs procedures and arrangements foreseen enabling me to optimize customs duties (e.g. customs warehouse, free zones, temporally import, etc.)? Are there any simplification procedures foreseen enabling me to streamline and optimize my supply chain? Etc.

As the complex and ever-changing legislation brings both risks and opportunities, we would recommend to take a close look at the impact indirect tax requirements and other regulatory formalities have on your supply chain, and how these are currently managed. A good understanding of your business setup combined with a thorough knowledge of the various legal requirements will enable you to mitigate risks and spot opportunities and optimizations. This holds true especially now that VAT will be introduced in the GCC. A mapping of the current supply chain is therefore very important to further determine the appropriate strategies.

UAE Tax

UAE publishes FTP law

The United Arab Emirates today released its first piece of federal tax legislation today which is not related to customs duties. It marks the first legislative step in an important process for the UAE of diversification of its revenues away from natural resources. The Law will apply for the administration of both Excise taxes and VAT. The former is expected to apply as from Q4 2017, whereas the latter as from 1 January 2018. It will also apply for any future taxes which the UAE may introduce. The UAE’s Federal Tax Authority will be responsible for administering federal taxes.

The Law will be followed by Implementing Regulations, but it already contains a number of important provisions.

In terms of the tax related records and information, as well as returns to be filed, these need to be in Arabic. Another language can be used, provided that a translated copy is provided at the expense of the tax payer and under his responsibility.

The FTA has the right to not give a refund of a certain tax if the tax payer still owes other taxes. For example, if the tax payer requests a VAT refund, but still owes Excise Tax, the FTA can compensate the two amounts.

Voluntary disclosures also need to be made using the original tax return which was filed. The FTA will however not automatically drop any penalties against the person making the voluntary disclosure.

Tax payers can appoint tax agents. These tax agents will be responsible for filing returns on behalf of tax payers. They are not jointly liable with the tax payer though, but do have the obligation to keep a copy of all records.

Tax payers will be notified of an audit 5 business days before it takes place, except in specific circumstances. Importantly, the FTA can amend any assessment it has previously made when new information surfaces after a tax audit.

The FTA can make an audit until 5 years after the relevant tax period, and even up to 15 years in cases of tax evasion. The FTA’s claims are never subject to any time limitations.

As an intermediate step before going to court, a Tax Disputes Resolution Committee is being set up. It will rule on differences between the tax payers and the FTA. If the tax payer is unhappy with the ruling of the Committee, he can still bring his case before court.

Pending the Implementing Regulations, the FTP Law already constitutes the basis of the interaction of tax payers with the FTA. More detail to follow in due time.

KSA releases VAT law

How real estate businesses will be hit by the introduction of VAT

VAT adds complexity to customs

Identifying indirect tax hurdles for your supply chain

UAE publishes FTP law

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