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UAE is all set to implement VAT from the 1st of January 2018, adding on to the unified VAT agreement for the Cooperation Council for the Arab States of the Gulf. Set at 5% for a wide range of goods and services, this could pose as a grave challenge for organizations who have little to no experience in managing any form of Taxation in an ERP environment; especially if you run SAP.

Organizations running ERP systems, like SAP must prepare well in advance and scope out every implication that a changing financial infrastructure will have on current business operations. Essentially every transaction in your business will have a VAT component. Therefore, it’s not easy to set up your SAP environment for VAT. All the transaction data required for your VAT calculations are available in your SAP ecosystem, however, this is not readily accessible without required configuration.

We can help you set up VAT

Moving to a VAT-enabled SAP ecosystem is quite complex. However, through careful planning with our solution experts and implementing SAP approved process Fingent can help you enable a risk-free and cost-effective transition.  Our solution consultants are with you all the way to get you up and running with VAT. Our tailored service enables organizations running SAP to assess impacts, scope implications, configure technology updates efficiently.

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We can help you with your VAT implementation

 Fingent’s 4 point approach

We understand the key features of the VAT Framework agreement and we shall analyze your business along the lines of the framework provided. An   overview of the framework is mentioned below:

  • VAT rate fixed at 5% if no exemption or zero rate applies
  • Member States have the right to subject the following to zero rate
    • Education, Health services, Real Estate, Local Transportation, oil and petroleum, medical supplies, financial services and export of goods outside the GCC member state.
    • Transport between intra-GCC and international transport will be subject to zero VAT rate.
  • Reverse charge mechanism can be enabled for the transaction of services or goods between one VAT-registered person in a member state and another VAT-registered person in another member state.
  • It is up to the member state to decide the VAT rules for free zones.
  • Compulsory VAT registration for member state with annual revenue of over AED 375,000
  • The framework provides an option for organizations, with an annual revenue ranging from AED 187,500 and SAR375,000, to register for VAT.

After analyzing your business in accordance with the framework, we will map your business transactions. This is a critical step and the time required to do this will be solely based on your business complexity and volume of transactions. We will review your existing system and help you understand the impact and effort involved while adopting to VAT requirements.

Although most VAT process and calculation should take place in your Finance Module, all VAT calculations are not entirely restricted to your Finance Module. VAT has implications for every transaction that you do, for example, Sales Quotations that are generated in your Sales and Distribution Module or Goods Flow calculations that are part of the SAP Materials Management Module all form part of this calculations. Each of such modules must be customized to enable embedding of VAT in SAP.  

There are two approaches to implementing VAT in your environment,

  • Customizing your SAP configuration along with our Tax Consultants to enable efficient configuration of VAT in your ecosystem
  • We can also help you connect with the SAP’s TaaS using SAP Localization Hub. To implement Taas you need to obtain an SAP Cloud Platform. This then needs to be integrated with all invoicing/billing of your system.

After integrating your system with VAT, Fingent’s Team will train your immediate SAP support staff. The team will ensure that the support staff will have a comprehensive understanding of the VAT system. This will include:

  • Training to understand the commercial impact of VAT in the SAP ecosystem.  Identifying and adding new transactions.
  • Processing of VAT for staff working on a transactional level.

Expected Special Rules

Our VAT solutions consultants expect the following special rules to apply considering the numerous segments.

Import of Goods: VAT is payable for goods purchased abroad by a VAT registered individual through a reverse charge mechanism. If you are an unregistered individual, VAT is applicable during import of goods purchased outside the GCC.

Insurance: Life insurance is treated as an exempt financial service, while general insurance is taxable

Real Estate: Sale and lease of commercial properties come under the ambit of Tax while residential properties enjoy a zero-rate for the first sale.

Freezones: Ministry of finance is yet to issue rules concerning the treatment of freezones. Each member state can decide how they can govern the freezone’s tax.

Finance and Islamic Finance: Fee-based financial services are expected to be taxed while there may be exempt for margin-based products. Islamic finance products will be treated similarly to standard financial services.

VAT Group: You can apply for a VAT group and be treated as a single taxable regime, two or more people are involved in a single business.

Our solutions consultant at Fingent has created a dedicated go-live strategy for organizations running SAP. These include testing processes and practices to ensure that you can overcome every VAT implementation challenge, enabling an efficient and smooth transition. Talk to our experts today!

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