Taxpayers in the UAE and Saudi Arabia will have to brace themselves for official audits next year as the roll-out of the 5 per cent VAT considering that January 1 this year conquers a variety of difficulties and teething problems.
Now that guidelines remain in place, taxpayers are expected to get ready for audits by the UAE’s Federal Tax Authority and Saudi Arabia’s General Authority of Zakat and Tax next year. It is an exercise that will evaluate their resources and the accuracy of record keeping in addition to the filing of tax return.
The 2 states were the very first nations in the Arabian Gulf to introduce the levy following the application of import tax taxes on energy and carbonated beverages and cigarettes in 2017.
” In the UAE and Saudi Arabia, next year there will be a lot of full-scale tax audit activity undertaken on businesses,” stated David Stevens, GCC VAT
Application Partner at advisory EY.
” These services require to prepare themselves to be able to entirely validate all of their numbers, all of their data, all of their declarations, all of their payments, all of their invoices, all of their record-keeping, and all various other elements of their VAT compliance that will come under increased analysis by the authorities as we enter into the second year of operation.”
GCC nations are presenting taxes to handle the crash in Brent oil costs from more than $115 per barrel in mid-2014 to around $50 per barrel presently.
The International Monetary Fund approximated that the intro of VAT in the region might create new income of 1.5 to 3 percent of non-oil GDP.
Bahrain will be the third country to present the levy on January 1, 2019, but it plans to introduce a more intricate system that has a great deal of items exempt from VAT in the middle of a lack of clearness over many aspects of the policies.
Meanwhile, in the UAE and Saudi Arabia, the tax authorities– which worked in 2018 to clarify obscurities about VAT guidelines and guidelines– will need to continue this exercise into 2019 as they begin to conduct tax audits.
” The authorities will be launching audit activity while there are some locations with unclarified guidelines, so they won’t understand how to enforce them,” stated Mr Stevens.
” The pressure falls on the authorities to solve any unclear, non-clarified or disputed locations of interpretation. They require those clarified so that auditors can do their task and taxpayers need that to ensure they are totally certified.”
Business in 2018 had a hard time to be compliant for various reasons. Some waited too long, some did not expect the levies to be presented, while others altered their processes to comply, however their work was dogged by mistakes.
” Preparedness was certainly a difficulty provided the reasonably short preparation in between statement and go live date,” said Jeanine Daou, Middle East Indirect Tax Leader at PwC. “Sadly many organisations either anticipated a hold-up in the execution date or undervalued the changes needed and begun late.”
There was a high learning curve to get it right due to the reality that tax is an unknown zone in the GCC. Authorities in the UAE and Saudi Arabia both offered taxpayers with freedom to assist them get over the initial missteps. For instance, the UAE extended the exemption duration for late registration charges up until the end of April to assist organisations prepare.
The authorities will require to continue clarifying rules and policies as more problems show up in 2019 due to the fact that VAT is a complex responsibility that is continuously upgraded and translated.
” All of the much easier things have actually been used and basically offered in-depth assistance by the authorities so far,” Mr Stevens stated. “The harder the problems, the harder the structured transactions, and the items that are on the edge of definitional boundaries are coming into a growing number of focus. Moving forward, the obstacle that the authorities will have is having the ability to accelerate the information, the rulings and the assistance process so that taxpayers do not just say they will charge VAT.”
Companies will need to additional digitise their processes in the middle of expectations that the UAE and Saudi Arabia will require tax treatments to be more digital. “What we are seeing now and I anticipate will continue to exist for the next couple of years is business attempting to enhance their processes, automate them in the system, develop tax departments and hire people,” stated Jason Riche, a tax partner at advisory Deloitte.
” In the Middle East today VAT management and compliance is quite a manual procedure and there is a lot of space for companies to enhance on this utilizing technology.”
All tax return in the UAE and Saudi Arabia are presently filed online, however other aspects might also be needed to be digitised. Experts anticipate the two countries to adopt a global technique to VAT, where items such as billings are submitted online, in some cases even real time.
“It wouldn’t amaze me if over the next 12 months we begin to see announcements about the future of the VAT regime in this part of the world going towards a first-rate, more digitised, electronic-based method to compliance also,” stated Mr Stevens.
“The federal governments here do not have the legacy of the past, so in many ways they can go to these cutting-edge advancements quite quickly and that is where the authorities will go. The journey is just beginning for the change of VAT in the economy here,” he said.