Key risks and challenges of VAT 26 September 2017

VAT impacts across the business 16/05/2013 VAT impacts across the business Procurement & production Supplier’s pricing A/P invoice processing time Purchases from non-registered VAT businesses Education of suppliers Sales & marketing Samples/marketing Pricing strategies Returned goods Education and communication to consumers Billing Finance Bad debts Deposits/ advanced payment Leases and hire purchase VAT return preparation Disposal of assets Sales of scrap Human resources Fringe benefits Gifts to employees Employees allowance and claims Legal Existing and new contracts Are any payments based on revenue/ turnover (franchise or royalty arrangements) IT System changes Documentation (Tax Invoices) Reports for VAT return

Examples of different types of supply Expected treatment in UAE Zero rated Exempt Standard rated Specified education Specified Healthcare (medicines and certain medical equipment list to be agreed across GCC) Supplies of identified sea, air and land means of transportation (international transportation) Exports of goods and services Identified investment grade precious metals Newly constructed residential properties that are supplied for the first time (and within 3 years of their construction) Financial services (margin- based) by banks and financial institutions Life insurance Bare land Local passenger transport Lease of residential properties Everything else Treatment of free zones is yet to be clarified

VAT technical Decision Making Scope (Goods & Services) Types of supplies (VAT rates) Registration threshold Place of supply Compliance (VAT accounting/ collection) Time of supply VAT technical Decision Making GCC regulations VAT recovery (Tax Invoices) Taxable person

Simplified supply chain Third Party UAE Third Party UAE Key challenges VAT Credit position in UAE? Working capital impact Business process changes System changes Recruitment and training Documentation requirements Transitional arrangements Goods & Services + VAT Goods & Services + VAT Enity UAE Third Party GCC Third Party GCC Goods – Reverse Charge? Services – Reverse charge? Goods – Zero rated? Services – Reverse charge? Goods – Import VAT? Services – Reverse charge? Goods & services zero-rated? Third Party RoW Third Party RoW

Key risks of not doing it right Processing incorrect AP invoices Issuing incorrect Tax invoice VAT recovery not supported by correct documentation and will be reversed COST: 5% of purchases in question Customer disputes an invoice, payment delayed, additional administrative burden to produce correct invoice COST: cash flow and admin Entity No timely VAT registration Incorrect VAT filings VAT on costs will be charged but can not be recovered. Late registration will result in penalties for non- compliance period. VAT not charged to customers, but due by entity COST: 5% of purchases + 5% of sales + penalties Upon audit FTA will charge all underreported VAT which can not longer be passed to customers. Any deductions denied can not longer be negotiated with suppliers. COSTS: 5% on selected purchases + 5% on selected sales + penalties

Thank you