VAT ADVISORY AND

IMPLEMENTATION

1.B4SH BACBABBA7D

Client and Project Background

Legal Framework for VAT Key

Considerations

LEGAL FRAMEWORK FOR VAT IN THE KSA

GCC

Agreement

(finalized and

published)

VAT Law

(final law

published)

Regulations

VAT Implementation

(final regulations published)

Tax Rulings

(as and when required)

▪ Sets broad principles and some mandatory elements for VAT in GCC

▪ Each state responsible for its own implementation andenforcement

▪ Primary legislation for VAT in KSA which gives effect

to GCC agreement

▪ Sets out implementation and compliance

enforcement framework for VAT

▪ Secondary legislations which provide

additional rules and laws for interpretation of

GCC Agreement and VAT law

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Manufacturer

(SAR 800 + VAT 40)

Distributor

(SAR 900 + VAT 45)

Retailer

(SAR 1000 + VAT 50)

Consumer

Landed Cost SAR 1050

SAR 40

SAR 45

SAR

50

SAR 5 (SAR 45 –

SAR 40)

SAR 5 (SAR 50 –

SAR 45)

SAR 40

Value Added Tax (VAT) Model

Vat Impact in KSA

Sales Price VAT @ 5% VAT Credit

Tax to the

Government

Manufacturer

to Wholesaler Net Taxable Price 10000.00 500.00 500.00

Wholesaler to

Retailer

Net Taxable Price 110% 11000.00 550.00 500.00 50.00

Retailer to

Consumer

Dealer Net Taxable Price 110% 12100.00 605.00 550.00 55.00

Total 1655.00 1050 605

Chapter two – Registration Who has to register? or eligible to register in the Kingdom Saudi Arabia

Chapter 2 – Article 2 Taxable person is a person Who does economic activity independently Who generates

income

Registered under VAT Or who is required to

register under VAT

Chapter 2 – Article 3

Read with article 50

of GCC agreement

Mandatory registration When Supplies exceed Registration Threshold

limit of total supplies of 375000 SAR OR

about to cross.

Person has to calculate

supplies every month

plus till past 11

months(for 12

months)

Apply immediately

when about to cross

Threshold limit

To apply with in 30days

It will be applicable from

next month when cross limit

Chapter 2 – Article 4

Read with article 50

of GCC agreement

Mandatory registration Estimated expected future supplies of 375000

SAR

Or to estimate

supplies of future 12

months

Apply immediately

when about to cross

Threshold limit

To apply with in 30days

It will be applicable from

first month expected

Chapter 2 – Article 5 Mandatory registration for

Non-Residents

To pay TAX From First supply made Or

received in KSA

From 1 inward Or

outward supply in KSA

Apply immediately To apply with in 30days

of the first supply .

Applicable from 1 day

Chapter 2 – Article 6

Read with article 12

Mandatory registration

Other provisions

When person has failed to make application TAX authority can

register immediately

With out application Next month when crosses

limit OR about to crosses .

Later or Earlier date may be

allowed.

Chapter 2 – Article 7

Read with article 51

of GCC agreement

Voluntary registration Estimated expected future 12 months supplies

or expenses of 187500 SAR (50% of mandatory

threshold)

Or When Supplies for previous twelve months

exceed voluntary Registration Threshold

Application before or

after crossing

Threshold limit

May be registered for earlier

or future date

Registration application has to contain the following minimum information: ( Chapter 2 - Article 8 ) 1. Official name of the legal Person Or if Neutral person then Name with ID info.2. Address of Office & business place 3. E-mail address & Contact mobile number 4. Electronic identification number if available - In KSA ID documents are mandatory for all citizens aged 15 and over. 5. Commercial registration number if any - Detailed information about organization performing commercial activity 6. Value of Annual supplies Or expenditures of last year ( Jan to Dec)7. Effective Or any other alternative requested date of registration

8. Any other info required by Tax authorities to be given with in 20 days if asked for .

Chapter 2 – Article 9 -Specific provisions for Registration

Exclusive ZERO rated

supplies

Are exempted form

Registrations

But can be registered

voluntarily

Related persons 2 Or more If carry on similar or related

economic activities

Annual Supplies be added within a

specified

duration, and combined figure be used

as each Person’s annual Supplies value.

NR person itself Or its tax

representative get approved

Change in tax representative as per

article 77 is to be notified with in

20 days

Chapter 2 – Article 8 DOCs required to register next page

• Standard Rate5%

Input Tax Deductible

• GOVT Or activities of Government and Public authorities (article 9)

• Employer , Employed or contracted persons where there is relation of employer & employees with remuneration (article 9)

• Transfer in the same entity or group entity (article 18)

• Issue or Supply of Voucher (article 19)

Out of Scope (Entities + Type of Transactions +

Supplies)

• Finance Services including Life Insurance (Article 29)

• Lease or license of Residential Real Estate (Article 30)Exempt

Non Deductible

• Exports of Goods from KSA (Article 32)

• Services Provided to Non-GCC Residents (Article 33)

• Transportation services for Goods or passengers outside the Kingdom and Supplies relating to transportation (Article 34)

• Medicines and medical equipment (Article 35)

0%

Input Tax Deductible

Rates and Input Credit mechanism

In Kingdom of Saudi Arabia Chapter Article 5% ZERO Exempted Out of VAT

Supply of medicine & medical equipments

Qualifying Medicines / Medical Goods by Health committee

6 31 –0 rate/ 35 ZERO

MDMA Listed

SFDA Listed

Private Health Care 5% ZERO

MDMA Listed

SFDA Listed

Internal (intra - GCC) / international Transportation 6 31 –0 rate/ 34 ZERO

Domestic Transportation in KSA - recreation or private use 5%

Private Education 5%

Commercial Real Estate 5%

Supply / Sale residential of Real Estate 5% Supply to own or close relative use

Rent residential of Real Estate 5 30 Exempted Use by own or close relative

Supplies of investment in gold, silver, and platinum 6 31 – 0 rate /

36

ZERO

Export out side GCC – Includes Services financial services. To

export with in 90 days. Docs evidences - Customs /commercial

invoice / Docs of place of Delivery & transportation

6 31 – 0 rate /

32

For goods

/33 For

Services

ZERO

Basic Food Items 5%

Oil , Oil derivatives & GAS 5%

Domestic Financial Services- Explicit Fess – Goodwill Or

Commission or commercial discount

5%

Life insurance , Capital Market Activity , Margin 5 29 Exempted

Upto SAR 40MM Above SAR 40MM

VAT Periodical Compliance

Filing frequency: Quarterly

First filing period: Jan – Mar 2018

First filing deadline: 30-April 2018

Filing frequency: Monthly

First filing period: Jan 2018

First filing deadline: 28-Feb 2018

2. SCOPE OF WORK

Scope of Work

Roadmap & Envisaged Approach

Deliverables and Timelines

SCOPE OF WORK

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Objective

To assist the Client by providing VAT advisory and implementation support. Saudi Arabia is shifting to a VAT regime form 1st January 2018

and all companies doing business in the Kingdom need to register for VAT by 20th December 2017 and start complying with VAT with effect

from 1st January 2018 .

Scope

▪ VAT Impact Analysis

Overall VAT Implications on company – Pricing, Costing, Profitability and Cashflow

VAT implications – Purchase side

VAT implications – Sales side

▪ VAT Implementation

Assistance in VAT Registration

Identifying Items on which VAT is applicable/ not applicable

Change required in accounting practices forVAT

General information required to capture forVAT filing

Invoice and other templates incorporating VAT and related information required for VAT filing

▪ Post Implementation Support

Filing support for 3 cycles of VAT filing to ensure that the Client achieves self-competence

ROADMAP FOR VAT IMPLEMENTATION

Action plan

PHASE-1

ImpactAnalysis

PHASE-2

Implementation

PHASE-3

▪ “As is” Study

▪ Suggesting Tax Optimization

Scenarios

▪ Drawing Change Management

Roadmap

▪ Impact in costing / pricing / cashflow

due to VAT

▪ Objective decision making for

optimizing the tax impact

▪ Approved implementation roadmap

▪ Registrations

▪ Policy and SOPs

▪ TeamTraining

▪ System Integration support

Post Implementation

Support

▪ Day to day queries

▪ Handholding team through 3 monthly

cycles of VAT filing from an offshore

basis

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▪ Clear operating guideline

▪ Team sensitization

▪ ERP requirement mapping

▪ ERP UserAcceptance

Testing (UAT)

▪ ComplianceAssurance

▪ Online issue resolution

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▪ System related feedback

generation

ENVISAGED APPROACH

Phase 1- ImpactAnalysis

Key goals under impact analysis is to assess the impact of VAT on product costing/ pricing/ cashflows and developing alternatives for optimizing tax outflows.

Key activities during this phase include:

▪ Collection of information related to product categories, delivery structures, contracts, classifications, etc.

▪ “As is” study to assess the impact of VAT on product costing/ pricing/ cashflows/ tax outgo, etc.

▪ Developing alternatives for optimizing tax outgo through change in delivery structures, change in contractual understanding, change in transaction

structures, etc.

▪ Discussions with management on findings of the “As is” study and the alternatives assessedabove

▪ Preparation of implementation roadmap based on findings and discussions with the management

Phase 2- VAT Implementation

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Major goals under this phase include providing assistance in VAT registration, Policy and SOPs, Team Training and System Integration support. Key

activities during the this phase include:

▪ Advising on the requirements for VAT registration and assisting the Client in the registration process

▪ Catalyze the decisions about managing credit from VAT for smooth transition, transaction models, teamrejigs, system rejig, budgets, etc.

▪ Catalyze approval of the change management roadmap

▪ Roll out the trainings to the core team with regards to VAT and relevant process changes

ENVISAGED APPROACH (CONTD…)

Phase 2- VAT Implementation (Contd…)

▪ Provide templates, vendor education, training and outreach for smooth flow of input taxcredits

▪ Design the relevant templates from gate pass to invoice, updateSOPs

▪ Coordinate with the ERP vendors or the support partner for rolling out the process levelchanges

▪ Creating a clear requirement and project manage the changes in the systemsparameters

▪ Doing User Acceptance Testing from VAT perspective

▪ Handholding implementation of determination tool in cases where there are multiple systems and wherein the auto logic is not working in the current

system

Phase 3- Post Implementation Support

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The envisaged goal under this phase is to handhold the team through 3 monthly cycle of VAT filing so that they achieve self-competence on the same.

Key activities under this phase include:

▪ Train the in-house team on VAT filing requirements

▪ Handhold the team through three cycles of VAT filing

▪ Review the errors and mismatch possible

▪ Suggest further changes in various aspects like systems, vendor relations, processes (if any)

DELIVERABLES AND TIMELINES

With regard to the above deliverables and timelines, please note that following:

▪ The timeframe indicated for the submission of deliverables factors in prompt receipt of information from the Client, provision of inputs in a timely manner and quick turnaround

of queries/ interim draft deliverables. Delays at the Client’s end on any of these aspects could lead to the timelines getting stretched.

▪ Client’s support may be required for securing visas for the VAT Consultant team members undertaking field visit to Saudi Arabia. Any inordinate delay in securing visas could

impact the execution timeframe indicated above.

Deliverables

The key deliverables for the various phases are summarized below:

▪ Impact analysis report

▪ Templates for Invoices and related SOPs

▪ Training material

The deliverables will be submitted in electronic format and all deliverables will be in English language only.

Timelines

The VAT advisory/ implementation shall take around 8 weeks across the project time-frame. Our initial estimate of timelines for various stages is depicted below. Please note

that the timelines provided are not contiguous but would be spread across the overall project time-frame leading up to the company registering for VAT and filing 3 monthly

returns

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Activity Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

Impact Analysis

VAT Implementation

Post Implementation Support

▪ The scope of services is limited to providing VAT advisory and implementation support to the Client as detailed in the scope of work. Technical coding and mapping of the

changes in the ERP system doesn’t form part of the scope of the assignment. However, the VAT Consultant shall coordinate with the ERP vendor/ partner/ internal IT team

for rolling out the process level changes in ERP and the UAT testing.

▪ Software licensing costs for any kind of software required to be used in the process of impact analysis, invoicing, determination, implementation, compliance, etc. is not

included in the professional fee for this engagement. The same (if required) would need to be purchased by the Client. Furthermore, providing hardware and networking

support doesn’t form part of the scope of services for this engagement.

▪ It is understood and assumed that there is centralized accounting system and all the accounting information will be available centrally from Head office/Corporate office for all

the relevant periods. Furthermore, all accounting records/ agreements/ contracts will be made available in English Language.

▪ All communication and trainings will be in English language. In case of any translators are required for communication with core team the same will be arranged by the

Client. Furthermore, the trainings will be provided at a centralized location.

▪ Timely execution of the project assumes prompt receipt of information from the Client and availability/ access to relevant executives for discussion. The VAT Consultant

further assumes that the Client would nominate a coordinator to ensure access to and smooth flow of information as well as to undertake the required internal co-ordination

to ensure availability of relevant executives for discussions.

▪ The VAT Consultant shall rely on the information and explanations given during the course of execution of the assignment and shall not be responsible for implications of any

incorrect, erroneous, or delayed information. The VAT Consultant reserves the right to amend its observations, workings and conclusions after any new/ rectified information

is made available.

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SCOPE ASSUMPTIONS AND EXCLUSIONS

Tax &

Finance

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IT

Systems

Human

Capital

Sales &

Marketing

Supply

Chain

VAT

Impact

Areas

▪ Assess costing

▪ Re-design Processes

Plan for transition to new law Plan for the

change in cashflow Design compliance

calendars

▪ Complete registration formalities

▪

▪

▪

▪ Add relevant tax clauses in relevant

agreements

▪ Validate critical documentation and formats

▪ Update VAT data in vendor / customer

masters

▪ Update Inventory masters with

tax class and rates

▪ Develop document formats for

Invoices / debit note / credit notes

▪ Design relevant statutory

reports for VAT filing and record

keeping

▪ Re-skill / recruit / outsource

▪ Assess and change the division of

responsibility with respect to VAT

▪ Collect Customer VAT

Data

▪ Restructure at existing

contracts

KEY CONSIDERATIONS FOR VAT

IMPLEMENTATION

VAT Team

Engagement Leadership

Technical

Partners

High level Technical

Leadership

Project

Team

Understand, IT support and Project

Management

Technical

Team

Domain support

Compliance

Team

Registration and Filing

Support

PROJECT TEAM

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In-depth GST implementation experience for

India

Committed point of contact for

each client relationship

Full-fledged IT implementation

Team

Trained Offshore Compliance Team

Specialized Tax Content Team

Thoughtful and

Experienced Ecosystem

Tax Firm

Since 1985

Why APMH?

Family

Owned

VC / PE

Funded

Multi-

Nationals

Startups Small and Medium Large

Trading and Distribution Manufacturing andAncillaries

Banking Logistics Construction and Real-estate

SAAS Engineering Hospitality Broking e-commerce

CLIENTELE SPREAD ACROSS VARIETY OF

SECTORS & OWNERSHIP STRUCTURES…..

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CA Mitesh Katira

Partner

APMH

Profile Brief

Mitesh is a Chartered Accountant and a ISA qualified

with specialisation lies in Business Advisory Services

with more than 15 years of experience. Mitesh has

been focusing on Internal Compliance

Outsourcing and

Audits,

GST

implementation. He has been helping corporate and

Multinationals on GST

Impact Analysis, Implementation and Compliance.

Mitesh has been convenor for Information Technology

Committee of the CTC i.e., Chamber of Tax

Consultants. He is also a part of IT committee of the

WIRC of ICAI. Mitesh

of thehas also been a Convenor

Ghatkopar C A CPE Study Circle.

Specializations

▪ VAT Implementation

▪ VAT Transaction advisory

▪ VAT compliance outsourcing

▪ Corporate Training

▪ Process Implementation

Education and Certifications

▪ Chartered Accountant

▪ DISA - ICAI

▪ FAFP – ICAI

▪ Certified trainer india GST by ICAI

Deepak Pasad

Senior Manager

APMH

Profile Brief

Deepak has more than 15 years of experience in the field

of tax consulting and compliance. Deepak has been

handling complex consulting matters with regards to

VAT, Service Tax and now GST for India.

He has been learning, understanding and writing on the

VAT implementation in the GCC region, mainly Saudi

Arabia and UAE.

Apart from tax, Deepak has deep understanding about

the tax technology and tax processes. He has been

advising clients with the detailed master, format,

process and reporting changes in the ERP to maintain

and extract reports from the ERPs like Tally, SAP,

Bhalcon, etc.

Specializations

▪ VAT consulting

▪ VAT opinions

▪ IT implementation for VAT

▪ Corporate Training

Education and Certifications

▪ Chartered Accountant

▪ DISA – ICAI

▪ IT system advisory VAT

Madhav Wagle Senior

Consultant APMH

Profile Brief

Madhav is senior GST consultant.

Madhav has been handling clients with

complex business models

compliance management. experience

in the indirect

in GST

His vast

tax while

working for 37 years in Color Chem which is now known

as Clarinet mainly in excise, SCM and SAP is

coming handy for

consulting on the GST matters. Madhav has been

handling corporate clients in and around Roha MIDC as

well as Mumbai, with respect to GST consulting and

compliance from APMH Roha office. Madhav has been

studying and developing content for consulting VAT for

corporates and multinationals in GCC region, mainly

Saudi Arabia and UAE.

Specializations

▪ IT system advisory VAT

▪ VAT compliance management

▪ VAT process designing

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E-Mail : mitesh@apmh.in

Mob : +91 9833777556Web : www.apmh.in