You may recall that I once described the GCC framework as the master plan and the value added tax (VAT) law as the building regulations for a six-site residential compound. Each country's VAT law represents the extent of individual decorations that are at the limits of what the neighbours will countenance.
The UAE and Saudi Arabia are almost finished building theirs and Oman has almost concluded formally approving planning permission for their unit via a decision from their Shura Council.
Today I want to look at our largest neighbour’s VAT programme and where the UAE sits relatively. As many companies trade across the GCC, there needs to be attention paid to differing treatments while taking indicative guidance where another country has pronounced ahead of us.
Saudi Arabia recently published its draft VAT legislation and if it has set precedence, those in the UAE delaying the initiation of their VAT compliance project until the local legislation is released are in for a shock. Like our neighbours, we have already been told that it is not going to be a comprehensive series of directives.
Many of Saudi Arabia's law clauses devolve nuance to executive regulations. These are the detailed protocols that will prescribe for discreet industries and circumstance. These will follow in the wake of the VAT law, not just in the months ahead, but updated periodically into the future.
While Saudi Arabia benefits from being (effectively) a unitary authority, the UAE has seven emirates, a Federal Authority and some reasonably muscular free zone voices to get on board to ensure congruence with key initiatives - initiatives like VAT.
The Saudis have stated that it wishes to receive feedback on what it has issued. This will influence the final version of the legislation. In the UAE, the Federal Tax Authority (FTA) seminars held and those to be held, offer a limited forum to likewise lobby for specific treatments.
It is right that we should be having a debate about what our VAT environment will ultimately look like. The questions posed and suggestions made in these articles are part of that discussion. Instead there is a dangerous mix of ostrichism, naive omerta to snippets of knowledge and oddest of all, the sending of VAT as a boardroom topic to Coventry. This is an English idiom, which basically means ignoring something.
Engaged SME’s will have noted that the Saudi law makes provision for cash-based accounting. This means that VAT would be reported in the period of payment rather than receipt or sending of invoice. The object is to support the cash flow challenges facing smaller businesses.
Details regarding the qualification ceiling has not yet been issued. Last time I heard it was raised, the UAE had yet to make a decision on whether to offer this option. If there was ever an inclusion all SME trade bodies should be lobbying for, this is it. Have you asked yours? Have you raised it with the committee of your country's business network group? If not, why not?
An area where the Saudi legislation is crystal clear is fines and penalties. In the UAE, a few examples aside, all that we have been told is that penalties of up to 500 per cent and/or jail time could apply in the case of tax evasion, whereas Saudi has now issued a panoply of penalties. UAE readers attempting to visualise this should turn their minds to the cornucopia of traffic offences recently published in the RTA’s nationwide road safety campaign.
In serious cases, such as tax evasion, in addition to a 200 per cent penalty, provision is also made for a 1 million Saudi riyals (Dh970,000) fine, two years imprisonment and other criminal penalties falling outside of the VAT legislation.
Continuing to steal a march on other GCC countries, the Saudis have launched a preregistration process. Utilising its existing Zakat database, those entities are being automatically enrolled and will be issued with a VAT number in the fourth quarter of this year. General registration will begin in September. In the UAE voluntary registration should be beginning soon and it will be mandatory from the fourth quarter of this year.
I had thought the information requirements for registration would be simpler, and while not arduous, there are many more components than one might consider necessary. In particular the request for annual actual and estimated sales and purchase values took me by surprise.
It might be to create a list of entities that could be forced to report VAT monthly due to the value of transactions; consider hypermarkets. This ensures that any potential VAT loss is contained to a single month. Logic suggests that this list could easily be constructed by any commercially aware group in a one day review.
A surprising omission is a requirement to register entity bank details for payments and refunds. All VAT monetary exchanges will be completed online. It would be reasonable to ask registering entities to provide this information, if for nothing else but to support staff reconciling poorly referenced payments against VAT numbers.
In June, Sultan Al Mansouri, Minister of Economy, announced that a corporate social responsibility programme was being introduced in 2018. There are similarities to Zakat in premise, but the key takeaway was that participants would be audited to ensure it was carried out in a proper manner.
Whereas Zakat is being used to pre-register entities in Saudi Arabia, the UAE will be able to use the VAT framework to identify who should be involved. My hope is that this will lead to the general requirement that all organisations will require an external audit.
I would normally conclude by coming full circle, but unfortunately we are now mired in a contradictory environment. The move by Saudi Arabia to implement excise duty overnight coupled with the various announcements detailed above should have jump started delayed compliance projects. However, the Qatari crisis has enabled a material amount of organisations to question whether VAT is even going to happen.
Guidance would be warmly welcomed.
David Daly is a chartered accountant [CIMA] who leads a consultancy practice in the UAE