GCC deal flow unaffected by VAT

Source: CPI Financial

The recent introduction of five per cent Value Added Tax (VAT) in the UAE and KSA has not impacted deal flow in the GCC as the tax rate is relatively low compared to global markets.

This is despite many companies finding themselves unprepared for the 1 January implementation date and scrambling to ensure they become tax compliant to avoid penalties, according to a recent Institute of Chartered Accountants in England and Wales (ICAEW) roundtable.

ICAEW members and guests gathered at the DIFC on 27 February 2018 to discuss the impact the introduction of VAT has had on deals in the GCC.

Panellists agreed that the flow of deals in the GCC wasn’t impacted by the introduction of VAT but there are uncertainties regarding the items subject to the tax. In this case, speakers recommended to follow best practises to maintain tax compliance. They also agreed that there was a sentiment of denial towards VAT across businesses which affected their ability to be ready on time. Businesses are now embracing VAT and reviewing their business processes and IT systems.

Speakers highlighted that not all businesses are fortunate enough to have access to consultants with VAT experience and smaller businesses with no access to experienced tax advice are struggling with the compliance processes.

In January some businesses experienced a negative consumer reaction to the introduction of VAT, however, panellists said this type of sociological behaviour would only occur in the short term and that in the long-term, VAT will help in creating a more stable economy.

Prior to implementation, there were concerns about how severe the impact of VAT would be on cash flow for businesses. At any given point businesses may owe the government large sums of money or be waiting to receive a refund. These amounts can really affect a business’s financial planning and panellists agreed that the construction, real estate and export industries are sectors that are significantly affected by VAT. Due to the long tenure of construction projects, businesses with existing contracts hadn’t factored in VAT when planning and found it difficult to pass the cost of the tax onto their customers.

Speakers explained that goods which are imported and then exported from the UAE now need to go through new customs and VAT clearance processes. Many businesses involved in this type of trade have struggled to understand all the rules and the relevant tax rates on certain goods.

Panellists applauded the UAE government’s efforts to provide to guidance make the VAT implementation process as easy as possible for all stakeholders.

“As a young legislative body, it’s tough for the UAE tax authority to address all concerns raised by businesses. It has been a hasty incorporation process, but as time unfolds, VAT will create a more transparent, credible and internationally accepted economy. Time will tell whether this increased transparency will make the UAE more or less competitive,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).

Panellists advised that the VAT is a system which proved to work in the UK and Europe for decades. As businesses become acclimated to the recent fiscal changes, the taxation system should gradually become more automated and seamless.

To ensure we are Forte Markets keep our finger on the pulse we’ve updated our VAT implementation workshop to optimise the implementation process for hospitality sector. Check out the workshop details here.

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