VAT

IMPLEMANTATION
AND TAX MAPPING
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How VAT
affects you?
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Understanding business impact through initial impact study
Introduction of VAT would not only bring change in the tax structure
of the GCC countries, but it could change the way business is done.

It would be a significant move with far reaching implications. VAT

could impact almost every aspect and function of the business.
Therefore, it is time for the business entities to assess the impact of
VAT on their business.

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :
Oper
ations
1. Understanding
impact of VAT on Admini
Sales Business
key business stration

functions.
Manag
ement
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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

2. Requirement of
realignment of key
business
processes

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

3. Identification of
stress on possible
cash flow

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

4. Understanding the
need for adaptation /
changes in IT

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

5. Credit limit
granted to
customers and
grated by the
suppliers
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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

6. Customer
Management

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

7. Vendor
Management

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :
8. Existing
contracts and
effect of VAT –
Look into
transitional
provisions
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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

9. Understanding
the impact on
registration and the
responsibilities

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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

10. If with limited

resources, choose
the best business
strategy – Zero
rated supplies
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Understanding business impact through initial impact study
Following are few of the important aspects to be considered in the
initial impact study :

11. Maximize the

input vat available
and mechanism

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 VAT Impact
Analysis
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 VAT Impact Analysis for Businesses
H. Am I VAT I. Manpower
A. Understanding ready? considerations
the business

H. Contracts and
B. What are my
Agreement
Taxable and non-
taxable supplies?

G. Reporting
c. Procurement requirements
of goods and
services

F. Information
D. Operations E. Financials Technology
 A. Understanding the
business
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.1 Review of Note the objectives, taking note

Articles and MOU of activities as approved by the
Partners and Authorities. Note
to know the any taxable supplies that are
objectives of the not in the approved activities
business but form part of the total
turnover of the Company/Group
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.2 Review and Note and list down all planned

understanding of expansion, additional branches
and companies in the processing
present and future of being incorporated. Note also
business plans to the planned expansion possible
ascertain VAT costs outcome today and in the
impact next 12 months. See also the
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capital expenditure in 2018 or
beyond.
VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.3 Assessing the Site visits where permanent

establishment and fixed
business first hand
establishments are located
by visit to place of
business including
branches and other
fixed
establishments
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.4 Review of Obtain excel copy (BS and

IS), side by side years and do
historical financial
an analytical procedures
statements for last
2 years-
(including upto TB
level)
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.5 Review of Obtain excel copy (BS and

IS), side by side years and do
forecast balance
an analytical procedures
sheet, cash flow
and income
statements for 2
years
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.6 Review of Refer to Company profile and

website write-ups
product / service
data sheets and
company profile

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.7 Review Make a Graphical

representation of the
corporate structure
Company (process flow chart)
of organisation

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VAT Impact Analysis

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.8 Identifying the Include in the scope on above

places of business, if A.7
multi-location presence
[Branches and other
fixed establishment from
which goods / services
are provided]
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.9 Understanding the Obtain atleast 5 of each,

industry, major
competitors and various
business process as
prevalent in the industry

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.10 Evaluating the Analyse the customers and

perception of customer / vendors
vendors/ related parties
on likely impact of VAT
on business

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

A.11 Understanding See receivables in the current

various policies in the year but collectible in 2018 or
entity such as retention 2019
of money from
customers and
repayment policy,
Guarantee / warranty /
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replacements
 B. What are my
Taxable and non-
taxable supplies?
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.1 Review of Profit of Loss

account to ascertain See the Policy in sales return,
a. Sale of goods percentage to sales in the past
Manufactured / Traded 2 years. If none, please note
b. Goods cleared in
Designated Zones /
Direct exports / GCC
c. Services provided in
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State / GCC/ Exports
VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.2 Review of discount

policy in organization and See the Policy in sales return,
impact under VAT percentage to sales in the past
2 years. If none, please note

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.3 Review of discount

policy in organization and See the Policy related to
impact under VAT discount, percentage to sales
in the past 2 years. If none,
please note

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.5 If the business is

service oriented, can it hold Key staff retention
on to key talent? Why or
why not?

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.6 Identify major

customers/clients to trace Key staff retention
the realizations to study the
implications under VAT.
Suggestion onchanges/
modifications if any.

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.7 Review of various

modes of supplies of goods Direct supplies, consignment
and services such as: or others

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.8 Ascertain impact on

sales supply chain / Direct supplies, consignment
distribution model under or others
VAT law Ascertain
requirement

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

b.9 Ascertain requirement /

non-requirement of various Direct supplies, consignment
sales / Service offices / or others
branches

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 C. PROCUREMENT OF
GOODS AND
SERVICES?
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

C.1 Review of procurement

policy of the organization Take note of the relevant
including imports policies

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

C.2 Review the nature of

services and goods From the financials obtained,
procured by segregating add columns related to:
the expense under a. Taxable at standard rate
following categories: b. Taxable at zero rate
c. Exempt and out of scope of
VAT

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.3 Review whether

procurements are made Make a classifications
through registered persons
in State / GCC / and impact
under proposed VAT.

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.4 Analysing the possibility

of suggesting vendors for Take note the Pricing method
better pricing and cost in place and to be placed in
reduction in VAT. the event of VAT
implementation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.5 Review of procurements

made under intra GCC / Take note the Pricing method
import to study impact in place and to be placed in
under VAT the event of VAT
implementation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.6 Review the purchase

and expense invoices on Take note the Pricing method
sampling basis to study the in place and to be placed in
impact under VAT with the event of VAT
respect to taxations and implementation
deductions for smooth
transition
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.7 Review of treatment of

purchase returns to study Take note the Pricing method
the possible impact under in place and to be placed in
VAT the event of VAT
implementation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.8 Review the foreign

currency payments to Take note the Pricing method
ascertain impact under in place and to be placed in
VAT- Reverse Charge the event of VAT
implementation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

c.9 Ascertain the possibility

of better purchase planning Take note the Pricing method
during transition in place and to be placed in
the event of VAT
implementation

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 C. OPERATIONAL /
ADMINISTRATIVE
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.1 Review the credit policy

of the organisation. This Take note of the relevant
could have significant policies
impact on cash flow
especially if the policy with
vendor and customer is not
synchronized
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.2 Review the system of

recognising sales / services Accounting method currently
and in place, versus tax point as
system of invoicing per the law
customers

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.2 Review the system of

recognising sales / services Accounting method currently
and in place, versus tax point as
system of invoicing per the law
customers

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.3 Review present

valuation mechanism Take note of the relevant
adopted and impact policies
under VAT on valuation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.4 Review the services

provided free of cost or free Deemed supplies
issue of
materials

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.5 Review of job work

register to identify the Take note of the relevant
process outsourced policies

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

d.6 Review of accounting

and billing system Take note of the relevant
(Centralised or policies
De-centralised) followed
and impact under VAT

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 E. FINANCIAL
STATEMENTS
REVIEW
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

E.1 Review the

shareholding pattern of See percent of ownership.
investment by group
companies / associated See rules of Group VAT and
enterprises related parties

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

E.2 Studying the nature of

accounts maintained by the See chart of accounts
organization

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

E.3 Review of taxes under

refund See bad debts more than 6
month

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

E.4 Review of stocks in

trade at all business places Inventory before 01 Jan 2018
including job worker’s place
and impact on release

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 F. INFORMATION
TECHNOLOGY
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.1 Review and identifying

software presently being
Software capabilities
used at various divisions of
organisation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.2 Review and identifying

software presently being
Software capabilities
used at various divisions of
organisation

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.3 Review system of

integration of data from
Software capabilities
various business locations
across GCC/ World

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.4 Review the agreement

entered with the software
Software capabilities
vendor to check policy of
regular updates,
modification of parameters

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.5 Review the existing

controls established to
Software capabilities
prevent alteration of
information in the records
and importance of the
same under VAT regime

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.6 Review of following

systems and suggesting
Software capabilities
changes
which may be required
under VAT

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

F.7 Advising on importance

of strong IT system under
Software capabilities
VAT regime and
arrangement with IT vendor
with respect to modification
of tax structures,
requirement of various
reports
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 F. REVIEW OF
VARIOUS REPORTS
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

G.1 Review of following to Interview the Internal Audit

ascertain the issues Department on their plans of
pertaining to indirect taxes action or management report
and level of compliance: related to VAT

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 H. EVIEW OF
AGREEMENTS /
CONTRACTS
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

H.1 Review of agreements Note each contract name,

to identify important clauses identify those with VAT Clause
with customers or vendors and none VAT clause, amount
which could have major involve and when to be
impact under VAT delivered or serviced

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

H.2 Advise on major Compute the effect (Arnel will

implications and do)
precautions to be taken
considering the transition
provisions under VAT

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 I. ASSESSMENT OF
TRAINING
REQUIREMENT
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH

I.1 Understand the level of

knowledge among various
departmental’ s heads

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH
I.2 If the distribution channel is
guided by tax inefficiency
under present tax regime, the
extent to which anomaly is
being rectified in proposed VAT.
Whether the change
necessitate the need to
alter/modify/change the supply
chain or distribution model
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presently being followed
VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH
I.3 Understanding requirement
of training for vendors /
contractors

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 J. TRANSITION
PROVISIONS
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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH
J.1 Review of registrations
obtained for various places of
business and status to
ascertain impact under VAT

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH
J.2 Review of systems followed
with respect to goods sent for
job work and impact under VAT

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VAT Impact Analysis
OBJECTIVES SUGGESTED APPROACH
J.3 Review of systems followed
with respect to finished goods
received back from customers
and impact under Vat

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VAT Impact Analysis

The checklist has been adapted

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 Case Studies

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 Record keeping
Requirement
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VAT obligation - Tax Return filing & Payment
➢ Submission online

➢ Deadlines for submission and payment:

− the due date will be 28 days following the
end of the return period

− where the due date falls on a weekend or

national holiday, the deadline shall be
extended to the first following working day

Late submission or payment can result in a penalty

levied by the FTA
 RECORD-KEEPING
Record-keeping
The following records are required to be kept to ensure accurate tax compliance:

1 2 3
Books of account and Additional records Any other information as
any information required for specific directed by the FTA that
necessary to verify taxes may be required in order
entries, including, but to confirm, the person’s
not limited to: Different taxes may liability to tax, including
require different any liability to register.
▪ annual accounts; records to be kept in
▪ general ledger; order for taxpayers to
▪ purchase day book; be compliant, for
▪ invoices issued or example, a VAT
received; account.
▪ credit notes and
debit notes.
Record-keeping
Taxable persons for VAT must in addition retain the following records for at least 5 years:
Invoices, credit/debit notes
❖All tax invoices and alternative
documents related to receiving
the goods or services
❖All received tax credit notes and
alternative documents received
❖All tax invoices and alternative
documents issued
❖All tax credit notes and alternative
documents issued
Records of:
❖All supplies and imports of goods
and services
❖Exported goods and
services
❖Goods and services that have
been disposed of or used for
matters not related to business
❖Goods and services purchased
for which the input tax was not
deducted
VAT account
❖VAT due on taxable supplies
(incl. those related to the reverse
charge mechanism)
❖VAT due after error correction or
adjustment
❖VAT deductible after error
correction or adjustment
❖VAT deductible for
supplies or imports
VAT invoices
VAT Invoice Simplified VAT Invoice
▪ ‘Tax Invoice’ clearly displayed ▪ ‘Tax Invoice’ clearly displayed
▪ Name, address and TRN of supplier ▪ Name, address and TRN of supplier
▪ Name, address and TRN of recipient (if ▪ Date of issuance
recipient is also registered for VAT) ▪ Description of goods or services supplied
▪ Sequential Tax Invoice number, or a unique ▪ Total consideration and tax amount charged
number which enables identification of the Tax
Invoice and the order of the Tax Invoice in any
sequence of invoices
▪ Date of issuance
▪ Date of supply (if different from date of
issuance)
▪ Description of goods or services supplied
▪ The unit price, quantity or volume, rate of tax
and amount payable expressed in AED for
each good or service
▪ The amount of discount offered
▪ Gross amount payable in AED
▪ Tax amount payable expressed in AED
together with rate of exchange applied
▪ Where the recipient is required to account for
tax, a statement that this is the case and
reference to the relevant provision of the law
(Article 48).
Audits
▪ The FTA can visit businesses to inspect records and make sure
persons are paying or reclaiming the right amount of tax.
▪ FTA will usually conduct the audit at the person’s place of business
or at the FTA offices
▪ If audit at the person’s place, must be informed at least 5 business
days prior to the audit
▪ FTA can close the place of business for up to 72 hours (e.g. suspect
tax evasion)
▪ FTA officer may request original records, take samples of
merchandise, mark assets to indicate they have been inspected
▪ The FTA may also remove records, documents and samples
▪ The audited person should be notified of the results of the tax audit
within 10 business days of the end of the audit
Transitional
Rules
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 Transitional Rules - Contracts
Where a contract is entered into prior to the effective date of the VAT law which concerns
a supply made wholly or partly after the effective date of the VAT Law, VAT will be due
on the supply taking place after the effective date of the VAT Law.

If the contract does not mention VAT, the value of the supply stated in the contract shall
be treated as inclusive of VAT.

Company A Enters contract to sell to

Company B for 5,000 AED –
Company B
contract is silent on VAT

Must account for

5% VAT to the
FTA on the value
of the supply
5,000 AED

238.10 AED payment to the FTA

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Transitional Rules - Contracts

However, where Company B is registered for VAT and is

entitled to full VAT recovery on costs incurred, Company A
can treat the contract as if the price stated was exclusive of
VAT and is able to charge VAT to Company B in addition.

Enters contract to sell to

Company A Company B for 5,000 AED – Company B
contract is exclusive of VAT

Must account for

5% VAT to the
FTA on the value
of the supply
5,000 AED + 250 AED VAT

250 AED payment to the FTA 58

Transitional Rules – Early invoicing or payment
Where an invoice is issued or payment is received prior to the date the
VAT Law comes in to effect, the value of the payment/invoice will be
subject to VAT where the following takes place after the date the VAT
Law comes in to effect:

▪Transfer of goods under the supplier’s supervision

▪Goods are placed in the possession of the recipient of the goods
▪Completion of assembly of the goods
▪A customs statement is issued
▪The customer accepts the supply of goods

The rules above are intended to avoid invoices being issued or payments being made prior
to the effective date of the VAT law for supplies of goods which effectively take place after
the effective date of the VAT law, for the purposes of avoiding tax.