A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at the point of retail sale.
Most of the countries around the world have VAT enforced in one way or the other.
VAT in GCC:
Value-added tax of 5% is being enforced in GCC from 1 January 2018 for all the entities which meet the registration criteria. This will effect most of the businesses in GCC, if not all.
Requirements for registration for VAT:
Mandatory if annual turnover is above $375,000;
Voluntary if annual turnover is between $187,500 - $375,000;
Not required if revenue is less than $187,500.
Total revenue will be calculated based to the total sales in the current month and the previous 11 months or the total amount of sales for the year ending next month.
If the applicant can prove that his company will exceed the Voluntary registration threshold or is expected to exceed it at the end of any given month.
Difficulties faced by the businesses in the aftermath of VAT enforcement:
• Not all accounting softwares available in GCC ready for it yet.
• VAT classifies goods into Taxable goods, Zero rate goods and Exempt goods, the treatment for each of them is separate to one another. This will create extra bookkeeping work as each of these items will have to be coded separately.
• The quarterly VAT return filling will require all accounts to be reconciled to make sure all income and expenses incurred by the business are accounted for.
• Quarterly filling of VAT returns will create extra secretarial work for business.
• When preparing the year end financials the VAT liability/asset in the books will have to be reconciled to the amount reported to Federal Tax Authority, which will create extra work for the Accountant.
• Will have to take into account the cost of VAT to evaluate business performance.
• VAT refunds from purchases will have to considered when calculating the cost of supplies.
Online Software's that are compatible with the VAT: