The recent announcement by the Kingdom of Saudi Arabia (KSA) that it is to raise its rate of VAT from 5 percent to 15 percent, effective 1 July 2020, caught many people by surprise.
This will result in a scramble by businesses to ensure that once the new rate is introduced they are able to comply, in as far as invoicing goes, but equally as important, that the changes made do not negatively impact commercial arrangements that are already in place.
There have been numerous requests in the UAE, lobbying for various additional types of VAT relief beyond those already announced, varying from a total abolishment of VAT, a six month VAT holiday, to a reduction in VAT rates.
The UAE government has indicated that it does not intend to follow KSA by increasing its standard VAT rate. However, as the saying goes, forewarned is forearmed.
Since the implementation of VAT in January 2018, our organisation has been called upon to review VAT compliance at many organisations and almost, without fail, have identified deficiencies of varying levels of severity.
Invariably, this was the result of either a rushed implementation, advice given by inexperienced consultants or business owners not being provided the correct information by employees tasked with ensuring compliance. These businesses were blissfully unaware of their potential VAT liabilities and in some cases had already incurred significant penalties.
This is an ideal opportunity to review your existing VAT framework and update or amend it where required.
The obvious areas to consider are invoicing, quotations, and purchase orders, but be aware that there are many more areas that should be considered, e.g.;
· impact on working capital management - your cash flow
· transitional rules - the change between now and what is to come
· embedded VAT rates in contracts - contracts that specify 5% but do not make provision for a changed rate
This is by no means an exhaustive list and professional advice is recommended.
If you have concerns, please feel free to contact us to support you in navigating through these challenging and often turbulent times.
The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.
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