Preparing for VAT Across GCC Countries
Value Added Tax (VAT) isn’t normally something you connect to legal tech. However, upcoming VAT changes in the Middle East can impact companies around the world and in varied industries, including law firms who do business in that region. If this is you, here are some things to consider when coming face-to-face with new VAT’s.
What’s happening. The GCC (The Gulf Corporation Council) is comprised of the following Emirate states; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. These countries implemented VAT in their states. The GCC Financial and Economic Cooperation Committee (formed by the GCC) is currently in the process of approving the common legal framework for VAT. The framework will form the basis for a national VAT system that will be implemented in each of the GCC states. Each member state will be required to issue its own national VAT legislation and will have the authority to determine specific VAT rules in certain areas. The objective of the common VAT framework is to introduce a standard, fully-fledged VAT system in each member state.
All states have been given a one-year implementation timeframe to have these systems in place and the VAT rate to be applied in all states will be 5%.
Requirements. In terms of registering for VAT, currently, the requirements are:
- Businesses that meet a minimum of AED 3.75m (Around GBP 800,000) of annual turnover must register for VAT.
- Businesses that meet the criteria between AED 1.78m and AED 3.75m (GBP 375,000 – 800,000) are voluntary for registering for VAT.
Key dates and when is this happening in this journey:
- October 2016 – Meeting of the GCC Financial and Economic Cooperation Committee. This is where the VAT framework was agreed upon.
- 1st January 2018 – The implementation of VAT commences from this date.
- 1st January 2019 – Deadline for VAT to be fully implemented in each specific region.
What does it mean for you? These changes have a significant impact tp firms who do work in the Middle East and have offices based in these locations. As seen with the EU VAT Validation rules put in place over five years ago, for any businesses that meet the criteria, they will need to register for VAT in the specific states in which they are located, but also their customers in these regions will need to provide them with VAT registration numbers. These must be validated by the VAT authorities. This will also have a significant impact on the way you invoice your clients going forward.
VAT configuration will need to be implemented for these entities and changes to invoice and credit note templates will need to be actioned your firm must charge VAT on services supplied.
From a GL perspective, new accounts will also need to be created for VAT purposes as all financial transactions need to be recorded and reflect the changes made to VAT. There is also a potential knock-on effect in relation to how you report for their Middle East offices.
It will also have an impact on time management and manpower for firms as an additional project and will impact the day-to-day running of their current processes.
How we can help: Using our Implementation Methodology, we can help you prepare for any challenges you face over the coming year. These include:
- Template Development (Design Gallery)
- Business Process & System Integration documentation
- Testing new functionality
Contact us for more information on our service offerings.