After Saudi Arabia recently announced that they will introduce a Value Added Tax (VAT) from 2018, a number of companies have been left confused with how to implement it. This agreement is in line with the International Monetary Fund’s (IMF) recommendation. The tax is expected to be at a rate of 5% and will only affect certain goods and services.
As most GCC countries do not have many forms of tax, this new step will have an impact on businesses in the GCC and the way they choose to operate.
What is VAT?
Valued Added Tax is a consumption-based tax. A business will pay VAT to their suppliers and will also charge VAT to their consumer. The difference in that amount is what they pay to the government. It is usually paid on a periodic basis. This tax will be implemented on most goods and services, with some exemptions.
The expected exemptions to VAT include; medical, cultural and educational products, financial and insurance services. Along with these are; daily necessities, bread and milk, books, and medical supplies and transactions relating to the exported goods and the services provided in foreign countries. However, the official list of exemptions have not yet been announced.
What do companies need to do?
Companies can prepare for the introduction of VAT for many ways now, to lower the impact it has on the business. This can include, looking to hire a consultant to help you prepare for the changes that VAT will make in your business. Consultants can help businesses with legal and tax advisory, supply chain, technology, training staff and more. There are also some actions that businesses can start implementing within the business.
- Maintaining financial records in an orderly manner
- Evaluating the capability of their existing systems
- Integrate an accounting system which takes into account VAT
- Review all legal agreements with suppliers and clients
- Add a clause to accommodate the VAT
- Carry out the required training in your company for the introduction of VAT.
Ongoing VAT responsibilities include;
- Keeping VAT books with accurate financial information
- Keep acquired and issued VAT invoices as proof when deducting VAT
- Submit a VAT return periodically
- Report on all VAT purchases made, including within the GCC and calculate the amount of VAT to be paid or refunded.
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