One of our resident VAT experts, Sudarshan speaks about the new guidelines and clarifications published by the FTA during last few months at IFA Dubai Branch Meeting on December 22,2018.
He highlighted the seriousness of proper tax compliance and recordkeeping requirement to avoid unnecessary penalties by the FTA.
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VAT: IMPACT ON BUSINESSES IN BAHRAIN
One of our resident VAT experts, Adnan speaks about how VAT can have an impact on businesses in Bahrain by highlighting the following key points:-
- Impact on Revenue
- Procurement and Input Tax
- Contracts & Policies
- Record Keeping, IT & ERP Systems
- Compliances
He also emphasized that Affiniax can help in the following ways :-
- VAT impact assessments
- Advise on tax-efficient structuring/
- Drafting of Sample Tax Invoices & Tax Credit Notes
- Registering and filing VAT returns
BAHRAIN VAT: LARGE FIRMS TO REGISTER BEFORE JANUARY 1, 2019
As part of the first phase of VAT registrations, the Ministry of Finance in Bahrain has announced that companies with taxable revenue exceeding BHD5M per annum are required to register by 20th December 2018. The effective date of registration will be 01st January 2019.
It is not clear whether applications received on or after 20th December 2018 will be penalized for late registration. It is recommended, however, to follow the deadlines to avoid any unnecessary complications.
For the purpose of VAT registration, a new government entity has been established with the name of National Bureau for Taxation (NBT). NBT is now accepting applications for VAT registration.
In the second phase of VAT registration, companies with Taxable revenue between BHD500,000 and BHD5 Million will be required to register by 20th June 2019 and the effective registration date will be 01st July 2019.
In the third phase, companies with taxable revenue between BHD37,500 and BHD500,000 will be required to register by 20th December 2019 and the effective date of registration will be 01st January 2020.
As such, persons with taxable revenue above BHD37,500 should prepare themselves from now to avoid any last minute delays. This is because updating Accounting, Financial, Human Resources and internal policies can be a time consuming process in light of the new VAT legislation.
It is expected that more guidance will be announced in the coming days and weeks. The Executive regulations to the VAT Decree Law is expected to be announced by the mid of January which should allow much more clarity.
VAT IN UNITED ARAB EMIRATES: PROFIT MARGIN SCHEME
The Federal Tax Authority (‘’FTA’’) issued a public clarification on Article 29 (VATP002) of the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax, few months ago. This has been further clarified by the FTA at an awareness session recently organised at the Abu Dhabi Chamber of Commerce and Industry in order to raise awareness among the taxable persons.
Profit Margin Scheme is a scheme that may allow the Registrant, in any Tax Period, to calculate and charge tax based on the profit margin earned on the taxable supplies and not based on the value of these supplies.
The profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, and the profit margin shall be deemed to be inclusive of Tax.
What kind of goods are eligible to be supplied under Profit Margin Scheme?
- Second hand goods, meaning tangible moveable property that is suitable for further use as it is after repair;
- Antiques i.e. goods that are over 50 years old;
- Collectors’ items i.e. stamp, coins, currency and other pieces of scientific, historical or archaeological interest.
What are the key conditions to apply the Profit Margin Scheme?
- Only those goods which have previously been subject to VAT before the supply in question may be subject to the profit margin scheme. As a result, used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme. There needs to be sufficient evidence or information to justify that the good was subject to previously.
- The goods must have been purchased from either:
- A person who is not registered for VAT.
- A registered business which has already applied Profit Margin Scheme on the same goods.
- The taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017.
Under what cases the Profit Margin Scheme will not apply?
- Used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme.
- Where a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply has been issued.
- Sufficient evidence or information is not available to justify that the goods have been subject to VAT previously.
How can we help?
Further, we can help you assess the eligibility of Profit Margin Scheme on the goods under question and advise on the implications and provide guidance in relation to the documentary requirements which need to be maintained to ensure compliance.
9 KEY POINTS TO BECOMING A PROACTIVE ACCOUNTANT
As a business owner we often feel if we had that something extra, something better and something clearer to take an informed decision. And that ‘SOMETHING’ often depends on the proactive approach from your Accountant. As a business owner and as a Chartered Accountant, I understand the limitations that we come across at both ends.
Our profession advocates a constant training to be provided not only for technical aspects but also for strong interpersonal skills, organisational competence and intellectual ability. So what are these characteristics? What makes someone stand out?
Here are 9 points that I think is important to understand the responsibility of a Proactive Accountant:
1. Stay updated all the time
Accountants must constantly stay up to date with the profession. Attending refreshers, going to conferences/ seminars and in house training is a must. Technological advancements are also evolving at a furious pace, so these also must be kept up with. Continual personal development is a must, not an option!
2. Story behind the numbers : The Bigger Picture
Providing a data generated report is easy. Staying on top of all the figures and paperwork is more important. At the very least, they need to understand where these numbers are coming from and what does it mean for the business. Good accountants will have a much shorter list of targeted questions that are developed specifically to aid their understanding which allows them to focus on the big picture.
3. Importance of Time
Every business needs management reports at regular intervals if not at real time. If these reports come after 2 months, it is like a post mortem report – you can read through it but cannot change anything.
4. Inter-dependability and Accountability at each level
It is important to make every effort to do the right thing. Every process in an organisation is linked to Accounts Department somehow. Accountants need to have exceptionally well people skills as they typically work in coordination with different departments within an organisation. They have the opportunity to work with different types of professionals and personalities. Therefore, they are required to be
generous with what they know; sensitive to other’s needs and be supportive of their team’s goals. We all succeed when we work together as a Team.
5. Decision making, critical reasoning & analytical ability
Business owners want their accountants to be strong and helpful in decision making, however decision making can be hard. There is always a tendency to put off decisions by procrastinating and concluding that you need more information, only to later conclude that you need even more information. A good accountant should always determine what is relevant and what is not.
6. Trust factor
The information that accountants work with is highly confidential in nature. This is why trust and professionalism are important traits that they must always abide by. Not only is this the right and ethical way to go about their businesses but having a reputation for trustworthiness will win plaudits in the long run. I firmly believe that we trade on our knowledge and ability, but we only get these opportunities through
demonstrating our commitment to client confidentiality.
7. Solutions seeker, not fault finders
Great leaders have the desire to help others succeed. Don’t find faults in the system, find a solution that helps the organisation to overcome an obstacle. Leadership characteristics can be taught but leadership must be exhibited day in and day out.
8. Commitment
Companies are looking for motivated, dedicated individuals for long-term employment. There is no short-term solution, neither for business owners nor for an Accountant.
9. Enjoy what you do
This last one might appear strange, but I firmly believe that we all need to enjoy what we are doing. There is no fun in 9-6 job unless you have a good working environment, surrounded by people who are happy and joyful. Work takes up so much of our time and it is in my opinion that mere monetary rewards will not keep someone in a career they do not enjoy. Whilst no one should expect to be smiling all day, every day it is important we have some fun along the way.
The characteristics of a proactive accountant starts with the basics of sound technical ability and solid ethical foundation. These are considered as a baseline and the Accountant needs to grow beyond the “rules and regulations” mind-set of our profession. Attaining and maintaining the characteristics mentioned above require a personal commitment but are crucial to the accountant’s long-term success. Have you got what is takes to be a good accountant?
VAT IN UNITED ARAB EMIRATES: WHAT IS IT AND WHAT ARE THE IMPACTS?
Why is VAT being introduced?
The Ministry of Finance and the wider GCC have agreed to implement Value added tax (VAT) at a rate of 5% from 1 January 2018. This landmark Agreement marks the start of a fiscal reform across the region.
The increased need to diversify the economy, changing operating models and promoting smart initiatives led by technology and employment continue to be key trends. In order to promote such change and create an economy which is safeguarded for the future, governments across the region have introduced various initiatives to reduce the dependency on oil-generated incomes and further stabilize the economy, one of which being the introduction of VAT in Dubai, Abu Dhabi and all of the Emirates.
How will VAT impact your business?
VAT in the UAE is likely to impact various segments of your business, therefore it is advisable to conduct a VAT mapping programme of your current procedures and processes in order to identify the VAT transformation required.
Depending on the size and complexity of your business and operations, VAT readiness can take from three months to a year, with an impact being felt across multiple touch points of your business, which include some, if not all, of the functions such as:
- Finance, Purchasing and Sourcing and Imports
- Sales and Marketing; Logistics and Customs
- Legal and Human Resources; IT Department for Systems and ERP
Standard Rate: 5% to be applied to most goods/services supplied by ‘Chargeable Persons’
Zero Rate: Zero VAT (0%) applied to limited goods and services.
Exempt Supplies: Supplies outside the scope of VAT. Input VAT will not be recoverable.
Who needs to register?
Mandatory registration will be required for ‘Chargeable Persons’ (individuals, companies, groups, etc) making ‘Taxable Supplies’ of AED 375,000 (generally calculated over a 12-month period). The voluntary registration threshold will be AED 187,500.
POINTS TO CONSIDER
VAT Returns: Most Chargeable Persons will need to file quarterly returns. The deadlines for VAT returns will be a month from the end of the quarter. Some entities may need to file monthly returns.
Transitional Rules: Transitional rules will apply on stock / WIP as at 31 December 2017. Contracts that cross over the date of implementation of VAT will be affected.
Tax Audits: FTA has been given rights to undertake a Tax Audit on any person to ascertain the extent of compliance with the provisions of the LAW.
What if you decide not to change anything?
If nothing is done, there is a serious risk that your current business methodology will not be compliant with the new legislation. Furthermore, you might not be able to submit a complete and accurate VAT return in a timely manner. Non-compliance could lead to penalties or prosecution, whichever applies.
BAHRAIN VAT: IN COMPARISON
The government of Bahrain has announced the implementation of VAT from 1st January 2019. An Arabic version of the VAT law has been published. Implementing regulations will be released at a later date which will explain the VAT matters in further detail.
Some of the important points and differences to UAE and KSA VAT legislation are as follows:
1. Mandatory Registration – Threshold
The Bahraini legislation refers to the GCC agreement for the mandatory registration threshold which stipulates Saudi Riyal 375,000 as the basis of calculation. The Bahraini legislation has not clarified which rate of exchange rate will be used to determine the final value of threshold. Threshold value is likely to be 37,500 if we look at the example of UAE threshold which is not exactly equivalent to the exchange rate pertaining to, for example, 01 January, 2018. UAE used a rounded off exchange rate of 1AED/SAR to calculate its threshold. Bahrain is likely to use a round off figure of 10 BHD/SAR, hence, BHD 37,500 as the threshold.
2. Mandatory Registration – Period
Another important distinction when compared to KSA and UAE legislation would be the period of revenue considered for mandatory registration. KSA and UAE consider last 12 months and next 30 days of revenue for the purpose mandatory registration. In contract Bahrain considers last 12 months OR “anticipated revenue” in the next 12 months. Companies may have to provide signed contracts to establish future revenue.
3. Voluntary Registration – Threshold and Period
Similar to UAE and KSA the voluntary threshold will be half of the mandatory threshold and both revenues and expenses can be considered for this purpose. But similar to the distinction in the period, previous OR next 12 months of revenue and expenses can be considered for the registration.
4. Tax Return Submission Date
It will be the last day of the month subsequent to the tax period. For example, for Quarter Ended 31st March, 2019 the last date of submission would be 30th April, 2019. This is similar to KSA.
5. Tax Debit Notes
The document titled “Tax Debit Note” is officially recognized when compared to KSA and UAE where only additional invoices can be issued for any increase in the value of a Tax Sales Invoice. For instance, in UAE and KSA, if by error or omission a Tax Invoice was undervalued, you need to issue an additional Tax Invoice describing the change. Bahraini Legislation recognizes a Tax Debit Note which can be officially issued to rectify such an error, instead of an additional tax Invoice.
6. Pre-registration Expenses
In Bahrain, with regards to sale of taxable goods, only those Input VAT credits can be claimed where the respective taxable goods would be sold after the registration date. In terms of taxable services, no Input credits can be claimed prior to 6 months of registration date. This is similar to KSA.
The distinction in UAE is with respect to the input credits on services only. Input Credits can be claimed as long back as 5 years prior to registration, provided that these services were used to make taxable services.
7. Education Services and related goods/services
In Bahrain these are Zero rated supplies. The legislation has not restricted this provision to government institutes only, whether higher education or not. The implementing regulation is likely to further elaborate on this topic specially “related goods/services”, and whether transportation, uniform, educational aids etc. would come under the zero rate or not.
In UAE, Higher education is chargeable at 5% VAT where it is a private institute. Otherwise public and private education and related goods and services are zero rated with the exception of uniforms, school trips, food items, electronic devices etc.
In contrast in KSA, all education services and related goods/services are subject to VAT at 5%. Though, the VAT payable by KSA citizens on educations services and related goods/services will be borne by the KSA government.
8. Enforcement
In Bahrain, the enforcement of VAT legislation will be done through an existing pool of judicial officers and public enforcement officials. So we may expect more inspections and enquiries when compared to KSA and UAE, where new departments are formed for enforcement which would need sufficient time to hire, train and start their inspections.
9. Failure to submit VAT return in time
The time stipulated in Bahrain before a penalty is levied is 60 days, when a minimum of 5% to a maximum of 25% penalty, on the amount of tax, can be levied. In contrast UAE, and KSA apply penalty immediately after the due date is over which is 28 days and last day, of the subsequent month, respectively.
10. Prosecution
In Bahraini legislation there is much more emphasis on criminal charges to be levied upon the violations of the law, when compared to UAE and KSA where financial fines are largely emphasized and higher in value.
TRANSFORMING HR AND STRATEGIZING CHANGE MANAGEMENT
We were recently honored with “Mark of Excellence” for “Best HR Transformation & Change Management Strategy” at the Future Workplace Awards on November 13, 2018 at Park Hyatt, Dubai.
The initiative to transform the HR practices at our workplace was rolled in the last quarter of 2017 by our leadership team with the goals of improving productivity and performance management, automating HR, developing people- friendly policies and redesigning HR processes.
Therefore, the focus was on ‘the big picture’ for successful transformation.
“We intended to boldly pursue today’s inevitable journey to transform the traditional HR operating model via fully integrated change management strategies and strategically managed HR transformation.”
Sumeet Nayyar-CEO& Partner
“We aimed to develop and execute on the right plan by focusing on the people first.”
Nihar Kothari –Partner
“We encouraged curiosity across all facets of the organization which opened people’s minds allowing them to try new things differently.”
Abeer Syed – Partner
” We created a vision for change which helped us to direct, align and inspire employees.”
Tanmay Saxena – Senior Manager, Tax and Compliance Advisory
ACTION PLAN:
Our leaders recognized the huge trends that are emerging very rapidly and started working proactively to respond strategically every step of the way. The following action-plan was laid down.
| Goal | Action |
|---|---|
| Transform HR practices | Hire a dedicated HR personnel |
| HR Audit |
|
| Establish retention strategies that promote the Firm as a great place to work/live. |
|
| Employee Handbook | Comprehensive development of handbook including updated policies |
| HR Automation by ensuring process simplification and retaining the “human touch” and avoid creating a feeling that the HR function has been depersonalized |
|
| Revamping Performance Management | Development of a PM model that aligns with business objectives |
IMPLEMENTATION
“We adopted a realistic approach towards change management as it concentrated on reinforcing the people side of equation combined with effort to manage and execute the change.”
Affiniax Management
“Our most senior leadership believed in and supported the idea of revamping the Performance Management Framework — a framework focused on fueling performance in the future rather than assessing it in the past.”
Sheeba Mirza, HR Executive
We introduced the KPI and MSC model to develop our employees by weighting the KPIs and competencies so that there is a clarity of goals and competencies among the employees to deliver business outcomes.
Challenge: The challenge was just around change. We were sort of used to the rhythms of the old system
KICKOFF: There were phased roll-outs:
- Mid-2018: May- We chose two departments with a pilot approach – Consulting and Corporate.
- Training session was held by the HR Executive for the line managers and their direct reports to make them understand the model.
- July 2018- We added the other departments – Audit, Accounts, Administration and Taxation later in the year.
- Formation of steering groups consisting of HR Executive, Director and the Line Manager of each department.
- And by the end of August 2018 we have covered all the departments.
RESULTS
CONNECTING CHANGE TO BUSINESS RESULTS
| Project | Purpose |
|---|---|
| Revamping Performance Management Framework – MSCs and KPIs | Employees are clear in understanding “how” to deliver on the expectations of “what” is expected. 70% weightage: KPIs and 30% weightage: Competencies |
| Free HR software | Automating HRMS thereby saving time, cost and increasing employees’ productivity.
|
| People friendly workplace |
|
| L&D Programs – YLP, FLP and Management Development Program | Development of employees at the entry, mid and senior level through customized learning programs. |
KSA VAT: WHAT ARE ZERO RATED SERVICES AND HOW CAN I ENSURE THAT I AM NOT CHARGING TOO MUCH TAX?
The tax treatment of services provided by registrants under the UAE VAT and KSA VAT legislation is often a complex area, with both sets of tax laws providing strict rules on when such services can be subject to the zero rate of VAT.
In KSA, in particular, the law requires suppliers to assess a number of factors prior to zero-rating services.
Article 33 of the KSA VAT Implementing Regulations set out the conditions in which services can be subject to the zero rate of VAT. To qualify for zero rating, all the below conditions must be satisfied;
- The supply of services must not take place in any GCC Member State* under the ‘special cases’ set out in the VAT laws,
- The supplier must not have any evidence that the customer is resident in any GCC Member State and must have evidence that the customer is resident outside the GCC Member States,
- The benefit of the services must not be received by the customer or any other person when that person is situated in KSA,
- The services must not be related to any tangible goods or property (including real estate) situated within the GCC Member States,
- The supplier must intend for the services provided to be consumed by the customer outside the GCC Member States, and
- The supplier must have no evidence that the benefit of the services will be enjoyed within the GCC Member States.
* Note that, as the GCC states have not fully implemented the terms of the Unified Agreement on VAT, for the time being the term ‘GCC Member States’ solely refers to KSA for the purposes of the above. i.e. if the supplier has evidence that the customer is resident outside KSA, for the purposes of point 2 above he will be treated as having evidence that the customer is resident outside the GCC Member States for the purposes of the KSA VAT legislation.
In practice, determining whether a service to a particular customer satisfies the above conditions for zero rating can be a complex affair. Service providers may need to consider matters including;
- Whether the non-resident customer has a presence in KSA, even if temporary, that may result in them not satisfying condition 3 above,
- Whether the services concern activities being undertaken in KSA, and
- Whether the ultimate recipient of the service is benefiting from the service in KSA.
In light of the above, certain service providers are adopting a strict approach whereby they are by default charging VAT at the standard rate irrespective of whether their services to a particular customer satisfy the above conditions. Such an approach can result in adverse consequences, and in particular, may impose an unnecessary KSA VAT burden for non-resident customers who may not be able to recover such VAT.
It is important for suppliers to fully understand the conditions as set out by Article 33 to follow the correct VAT treatment of services provided to clients outside KSA. The GAZT is constantly issuing new guidance to assist registrants in determining the correct tax treatment of their supplies and you should seek advice if you are uncertain of the applicability of KSA VAT on your supplies as appropriate.
THE VALUE OF BUSINESS CONSULTING IN THE UAE?
Determining the value you can derive from business consulting is one of those things that often comes with hindsight and, on occasion is overlooked or missed entirely. Having expert specialist advise or guidance often leads to the right decisions being made on a day to day basis and that can be mistaken for ‘business as usual’ rather than seeing it’s true benefit.
One way to highlight the real value of business consulting is to think of it terms of dentistry (let’s think way outside the box here).
Some people are methodical and make regular appointments to visit their dentist for a checkup. During that checkup, they will look at the health and vitality of the teeth and gums and look for any hidden problems or potential future issues that can be resolved and removed before they happen. When bigger problems are present, remedial action can be taken and they leave in the knowledge and comfort that they are likely to be incident free in the period until their next visit (and even if that is not the case, they know exactly where to go if something does happen)
At the other end of the scale are those who will only visit the dentist once the pain of a problem has reached the point that they can’t continue to operate without remedial action right now. This is often painful, disruptive and, more often than not, extremely costly as the actions required to get back on track are far more extensive and potentially difficult to administer.
This principle fits well with business consultancy. Having highly skilled business professionals giving your business a check up on a regular basis helps anticipate and tackle problems of all shapes and sizes on the go. If you consider the cost of remedial action at the dentist being high, compare that to having to perform a root canal to your corporate finances or poor due diligence and you start to appreciate the real value of consultancy as a regular input rather than an emergency procedure.
Business consultancy from Affinax covers a broad spectrum of key aspects that absolutely must be delivered with the utmost accuracy and professionalism. Whether you are valuing your business or a potential investment through to drafting commercial agreements or even winding up an organisation, make sure you are best placed to make effective and correct decisions. Few of us are lucky enough to have experience in every aspect of business and commerce and even larger corporations don’t always have the core competencies on their staff full time.
Why not speak to the professionals at Affinax and explore their scope of services and what benefits they can deliver to help you maintain a vibrant healthy smile in your business.
