1. Latest Developments and Impact on the Financial Sector
VAT in the GCC
Latest Developments and Impact on the Financial Sector

2. VAT Recent Developments
A Common VAT framework
The GCC Member states are in the process of agreeing a common framework for the introduction of a VAT system in the GCC. A formal announcement of the Treaty is expected shortly afterwards. Upon ratification of the GCC Treaty, each Member State is expected to issue its own national VAT legislation based on the agreed common principles.
VAT legislation
Each Member State will issue its own VAT legislation in accordance with the common principles outlined in the GCC Treaty.It is expected that some countries will issue VAT legislation shortly after announcement of the treaty by the GCC.
VAT Regulations
These regulations will provide guidance to tax payers in each GCC Member State on the interpretation of the VAT legislation in that Member State. We anticipate that the regulations will be issued shortly after the VAT legislation is issued.
Go live
The introduction of VAT across the GCC is expected to take effect from 1 January 2018.
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VAT in the GCC

3. Our understanding of the GCC VAT system
Standard rate 5%
VAT at Import
Minimum annual turnover
VAT on goods & services
Possible VAT exemptions
Exports subject to 0%
Deduction of input VAT
Periodical filing and reporting
Expected transition period between 12 to 18 months
Envisaged system is a standard fully-fledged VAT system applying on most supplies of goods and services with possible exemptions/exceptions
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VAT in the GCC

4. VAT/GST Design Benchmark
The design of the VAT/GST system has a direct impact on cost of compliance and cost of collection
High
Multiple VAT rates
Multiple exemptions
Complex and inefficient obligations
Lack of facilitating instruments
Burdensome fines
Low
Single VAT rate
Few exemptions
Simple and clear regulation
E-filing
Proportional penalties
New Zealand EU
Brazil
Norway
Chile
Mexico
Australia
Singapore
High
Low
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VAT in the GCC

5. Impact of VAT on Organization
Purchases
Suppliers
Government
Administration
People
Systems
Assets
Organization
Payments
Cost + VAT
VAT Filing Filing
Payments Refunds
Net VAT
Customers
Sales
Payments
Sales + VAT
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VAT in the GCC

6. Financial Services
General treatment is that most Financial Services are exempt from VAT (no VAT charged – no VAT deductible on costs associated with supplies)
Typical supplies include:
- granting and negotiation of credit
- transactions concerning payments, transfers, deposits, currency, bank notes, etc.
- transactions in shares and other securities
- insurance transactions
Some services are subject to VAT (VAT is charged – VAT deductible on costs associated with supplies)
Typical supplies include investment advice, safekeeping and debt collection services
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VAT in the GCC

7. Financial Services Challenges
Identification of correct VAT treatment of supplies i.e. taxable vs exempt
Identification of VAT incurred on costs particularly reverse charge services received
Budgets, responsibilities
Capital Goods adjustments?
IT customization to capture / calculate the recoverable amount of VAT :
How does your systems landscape look like?
Commercial impact of non-recoverability - lower margin or higher selling price:
Allocation of VAT costs
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VAT in the GCC

8. What does VAT mean for businesses
Business impacts
Potential effects on margins and pricing
Cash tax impact from VAT leakage
Cash flow: funding of timing differences between paying and collecting/receiving VAT
VAT issues when undertaking deals
Technology and Systems
Systems changes for VAT compliance and reporting (e.g. financial and point of sale systems)
VAT coding of accounts payable and receivable
IT architecture impacts
Process and compliance automation
Electronic documentation
Data and analytics to enhance compliance
Controls/Monitoring
Legal
What VAT means for you
Controls/Monitoring
Reflecting the VAT law
Identify correct VAT treatment of every business transaction
Industry sector specific issues
Inter-company transactions
Intra GCC transactions
Apply any exemptions/Zero rate
Sales and Marketing
VAT treatment of sales and exports
Effect on demand
Pricing strategy and payment terms
Customer management
Impact on current contracts and commercial arrangements
Compliance – throughout the value chain
Map business flows including procurement, production, logistics, sales and marketing activities
Establish VAT management framework covering governance, controls, roles and responsibilities
Tax knowledge and training
Tax registrations and filing requirements
Process and procedure guides
Procurement
VAT treatment of purchases and imports
Procurement strategy
Vendor management
Contracts and arrangements
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VAT in the GCC

9. A phased approach will facilitate smart choices in effort and sequencing
VAT technical
Project management
Business processes
Technology
People & organization
Impact assessment
Design
Implement
Operate
Pre
announcement
Business impact modelling.
Undertake a gap analysis to assess the systems, people and process changes required to be VAT compliant.
Build awareness.
Assess high level business impacts.
Review contracts that need a VAT action.
Shape project.
Design VAT approach for:
Tax technical considerations
Governance
Financial, sales and supply chain systems
Filing and reporting.
Implement system design requirements.
Transitional measures.
Training and communications .
Simulate and test before go- live date.
Ensure VAT compliance and efficiency.
Monitor new developments.
Ongoing staff training.
Mobilisation
VAT readiness assessment
VAT Blueprint
Re-configured systems, processes and people
Ongoing compliance and continuous improvement.
Outcome:
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VAT in the GCC

10. Latest Developments and Impact on the Financial Sector
VAT in the GCC
Latest Developments and Impact on the Financial Sector