internship report

Internship first progress report

Reem Omar Bayazeid

ID: 1410184

BNFN4303: Internship: Banking and Finance

Instructor: Ms. Dunia Mamlouk

4th April 2018

Table of Content Executive Summary 3 Abbreviation list 4 Introduction 5 Internship scope 6 Background about internship organizations 6 EY MENA TAX 8 EY K.S.A. 9 Tax Deaprtment 9 Challenges 12 Conclusion 13 Appendix 14 References 14

Executive summary:

An internship provides students with numerous benefits and gives them a chance to apply the theory they learned in practice. The intern is doing her internship at Ernst and Young from the 21st of January to the 26th of April 2018 in the Tax department. The company is a professional services company with headquarters in London and offices all across the globe. The company was established in 1849 due to a merger between two companies. They have five service lines which are tax, audit, advisory, transactional advisory services, and core business services. Their purpose is to build a better working world. EY has the largest tax practice in MENA, and they have three offices in K.S.A in Jeddah, Riyadh, and Al-Khobar. Furthermore, taxation in Saudi Arabia is in the form of zakat for Saudi/GCC nationals and tax for residents’ companies. The tax department has several functions. EL is an agreement between the company and the client for the coming year including the services to be provided. It is done at the beginning of the year before providing services to the clients. At the end of the financial year, company’s report their tax/zakat return along with their financial statements. Depending on the nature of the company, either tax and/or zakat will be performed with certain additions and deductions to reach the zakat/tax base. The Final declaration is to submitted to the GAZT through ERAD system. Additionally, withholding tax is levied on services provided outside the kingdom, mostly prepared monthly for companies. Furthermore, challenges faced in the department are the extreme confidentiality, need of accuracy in data, misplaced data, and the approval process.

Abbreviation list:

Introduction

Internships deliver huge benefits for students and graduates. Through training, they’re able to broaden their knowledge and experiences along with increasing their chances for landing a job. Internships provide a flavor of what a job is like, builds resumes, and provides opportunities to meet people who can help mentor in career paths. Interns must take advantage of the benefits of being in an internship and expand their business background.

Internship Objectives

For the Intern:

· To develop a deep knowledge about the Tax law in Saudi Arabia with full understanding and ability to practice.

· To develop various skills from the work experience such as technical skills, problem solving, communication, and cross-cultural interpersonal abilities.

· Meet potential mentors who provide guidance, support, and constructive feedback.

· To apply what the student studied in real work experience; along with relating principles and theories taught at the university.

For the Internship Organization:

· Understand tax regimes in different jurisdictions by reading relevant materials and EY Tax Publications.

· Learn how to read tax treaties.

· Learn how to complete tax filings.

· Develop an understand of fee structures and engagements economic, reconcile financial statements for tax purposes, prepare draft tax advice for local entities and multinational entities operating in the Middle East.

· Read about the specialist services offered by EY different Tax Sub-Service lines e.g., ITS, TT, Transfer pricing, Indirect Tax, GCR, TARAS, etc.

· Attend client meetings.

· Attend EY and departmental social events.

For the University:

· Identify the operations, procedures, norms, and principles of work in a real organization setting.

· Demonstrate professional skills during the internship program.

· Relate how theory and best practices are or are not carried out in real organizations.

· Recognize different functions and activities related to their field.

· Analyze real life scenarios related to their field.

· Reflect on gained learning and experience identifying routes for further development.

Internship Scope

The trainee is doing her internship at EY Jeddah from the 21st of January to the 26th of April 2018. She works on Sunday, Tuesday, and Thursday from 1:00 PM – 6:00 PM and on Monday and Wednesday from 9:00 AM to 6:00 PM. She works in the Tax service line (Global Compliance and Reporting), which is one of the five service lines in the company.

Background about internship organizations

EY is an international professional services company. Its main headquarters is in London, England with branches all over the globe. It is one of the “big four” accounting firms; the big four consists of Deloitte, PWC, KPMG, and EY. Moreover, it’s one of the biggest professional services company in the world. The firm was first established in 1849 in England creation of Harding and Pullein. The current firm was established in 1989 as a result of the merger between Ernst & Whinney and Arthur Young & Co. In 2013, the firm went through rebranding and became EY in relative to its previous name of Ernst and Young. The current CEO of the company and chairman is mark Weinberger.

EY operates as one firm within four global regions, 33 sub-areas, across 150 countries. The four regions are Americas, Asia, Japan, and EMEIA (Europe, Middle East, India, and Africa). The company has over 200,000+ employees worldwide. EY’s global revenue reached $27 Billion in financial year 2017. EY has five service lines, four of which are revenue generating. Their first line is assurance which is the most revenue generating service line. It comprises 38% of their revenue. Assurance includes auditing company’s financial statements and providing accounting advisory along with fraud investigation. Second line is advisory which amounts for 26% of their revenue. It includes performance improvements, risk management, and IT risk assurance. Third line is transactional advisory service which results in 9% of their revenue. It consists of valuation and business modeling, M&A, and corporate finance.

Fourth line is tax which comprises of 26% of their revenue. It includes people advisory service, transactional tax, and indirect tax. Fifth and last line is the core business services including business development, finance, and talent team.

First Ernst and Young Logo Second Ernst and Young Logo Present Logo since 2013

Mission

 Provide high-quality legal services, with common sense and business sense, that allow our clients in the region to achieve their goals more safely, efficiently and quickly.

Vision

 To be the most recognized corporate law firm for excellence, human quality, and business success of its clients; for the preparation, knowledge, experience, and ethics of its partners, associates and employees; and for the accuracy, speed, efficiency, value and reliability of its services.

· Vision 2020

Ambition

We will have the best brand. We will be the most favored employer. We will be #1 or #2 in market share in our chosen services. We will have leading growth and competitive earnings sufficient to attract and retain world-class talent. We will have positive and strong relationships with our stakeholders.

Purpose

Building a better working world.

EY MENA Tax

EY is the oldest and most integrated of the big four in the Middle East; their first office was established in Bagdad in 1923. EY MENA focus sectors are oil and gas, real estate, financial services, government and public sectors, and power and utilities. The chairman and regional managing partner of MENA is Abdulaziz Al-Sowailim; furthermore, MENA tax services partner is Sherif El-Kilany. EY has the largest tax practice in MENA region. EY MENA is present in 20 Countries with 21 offices and 5000 employees.

EY Tax K.S.A.

In 1967, Whinney Murray & Co. company was established in Jeddah as a consultancy firm. However, in 2001, EY wanted to enter the Saudi market, so they acquired the company and it became Ernst & Young. EY has three offices in Saudi Arabia located in Riyadh, Jeddah, and Al-Khobar. Jeddah office has around 310 employees, and around 90 employees in the Tax department. The tax department in Saudi Arabia has witnessed 15-20% growth in revenue over the last three years.

They have the largest tax practice in MENA as in YTD financial year 2017, the company recorded 56 Million in Revenue. It constitutes 45% of entire MENA revenue. Jeddah managing partner is Ahmed Reda. Tax department in Jeddah has four partners for direct tax, and one partner for indirect tax (VAT).

Tax Department

Engagement Letter

Before providing any service to a client at the beginning of the year, the first thing done is an engagement letter. This document is of vital importance as this agreement shows the legal contract between the company and the client. It consists of a cover letter and a statement of work. The cover letter includes the name of the company to whom the service will be provided and the valid duration of the contract. The statement of work includes all of the services and the fees that the company will provide to the client. The agreement must be signed by a licensed partner before sending it to a client. Licensed partners must be of Saudi nationality and have a SOCPA certificate. In order for the partner to approve and sign, two documents must be provided. First is note one of the financial statement as it includes the correct name of the company as mentioned in the article of association. The name should be exactly reflected in the letter. Moreover, a PACE signoff should also be attached. A PACE signoff measures the riskiness of the company from various aspects. The company must fall within the accepted range to have a positive PACE signoff. After the partner signs, the letter is sent to the client for his signature. Afterwards, the company can start providing the services.

Certification (declaration attestation)

In mix and tax companies, if gross taxable revenue exceeds SR 1 Million, the tax declaration must be certified. Attestation of returns is done by confirming that the information recorded in the return are extracted from the taxpayer's books and records and are in accordance therewith. Also, that the return has been prepared according to the Income Tax Regulations.

Final Declaration (tax / zakat return)

There are two systems of taxation in Saudi Arabia. Companies incorporated in Saudi Arabia with respect to shares owned by Saudi or GCC nationals/companies are subject to zakat. All other resident companies in respect of non-GCC shares are subject to income tax. At the end of the financial year of any registered company in Saudi Arabia, they must file their FD. The FD is the authority’s form for calculating institution’s profits along with filing their tax/zakat returns adhering to the Saudi Tax Law and By-laws. The company has 120 days from their last financial day as mentioned in their article of association to submit their FD to the GAZT. The FD is uploaded through ERAD system. For every day delay, the penalty for the non-submission of tax-return is the higher of either 1% of the total revenue, not to exceed SR 20,000, or 5% to 25% of the unpaid tax due depending on the period of delay. No delay fine is imposed on delay in filing the zakat declaration or in settlement of zakat liability; however, any work for the institution in a governmental entity is blocked until the filling.

For the tax computation, the base for the calculation is the accounting profits as per the FS for the year, then disallowable costs are added to the tax base. Each company has different disallowable cost, but some of the common costs include end of service benefit, doubtful debts, and depreciation. Additionally, allowable costs are subtracted from the tax base such as unrealized gain and utilized provisions. All of the movements are provided from the FS. The resulted amount is the adjusted profit which is multiplied by the percentage of non-Saudi shareholders. Then it’s multiplied by the tax rate depending on the nature of the company, 20% income tax for resident companies, 30% on natural gas companies, and 85% on oil and hydrocarbon material. The final amount is the Tax due. On the contrary, zakat is on the Saudi shares of net funds or adjusted profit whichever is higher. Additions to the base are balances at the beginning of the year such as capital, reserves, and retained earnings. Balances at the end of the year are deducted such as fixed assets and long-term investments. The net assessable funds are then multiplied by 2.5% as levied by the sharia law reaching the zakat due. The FD is reviewed by the manager and must be signed by the partner; moreover, it must be approved by the client before submitting it through ERAD.

Withholding Tax/ Annual Withholding Tax Return

The withholding tax regulations took effect from 30th of July 2004. Withholding tax is tax levied on services provided outside the kingdom for it is paid to the government by the payer of income. WHT includes payments made to nonresidents of rent, royalty, technical consultancy services, payments of air tickets, air and maritime freight, and other payments as determined by the by-laws with various rates. WHT are prepared for the client on monthly basis depending if any services were performed abroad. Once the information is received from the client, the company prepares their monthly withholding tax. Services are grouped and multiplied by the rates based on their nature. The WHT should be paid within the first ten days of the month following the month during which the payment was made. After the WHT is submitted to the GAZT, an acknowledgment is issued for the client to pay. Moreover, at the end of the year AWTR is prepared which is to be submitted along with the FD. The AWTR is the full year’s WHT combined in one document. Each entity with whom the client had a service performed must be recorded with the total payment of all the months.

Challenges

As each year the teams in the tax department undergo shifting in the team members, each team will be responsible for new clients. Therefore, the information they once saved is now of use by another employee. Sometimes employees miss saving some information in the server or the information is misplaced which makes it difficult for the new person in charge to allocate the information. The company is working to improve this problem as they had a training session for the employees with the right way of saving data with the appropriate names. Even the new joiners and interns were taught and supervised excessively on this issue. Additionally, before any technical work gets sent to the client, it has to be approved by the senior in charge, manager, and then the partner. Printing the documents and receiving all of the approvals takes abundant time and effort that could’ve been done finishing other tasks. The company just launched a new system that hasn’t been fully operated yet that makes all of the process online and much faster. Once a job is done by the associate (entry level) a notification gets sent to the next person in charge, and the document is presented online for his adjustments and review, and the cycle continues until the partner approves. Also, one of the main challenges is present in the tax season. The season is usually from first of April until the 30th as most of the company’s financial year end in 31st of December; therefore, the deadline for the FD submission is on the 30th of April. However, for the tax department to start the FD, they have to receive the revised trial balance and final FS from the company’s auditors. Most of the time, these documents are sent very late, few days before the submission, which causes the team stress and pressure to meet the deadline. What the intern recommends is to have better coordination between the departments especially when EY is the auditor. The audit should organize their clients with the tax department for both departments to finish on time. Furthermore, any work needs to be reviewed by more than one person as numbers and commas need to be accurate as a mistake could cause the company millions. Another challenge is the high confidentiality and accuracy of the information. Using the wrong name of the institution with only a minor difference can create legal problems for the company. Moreover, papers should be terminated properly to withhold leakage of information. Also, employees can’t discuss any work matter with family or friends as all of the information is extremely confidential. Last, the intern faced a challenge coping with the Arabic FS as she was never exposed to them.

Conclusion

To conclude, the tax department at EY is one of the biggest, and they deal with a huge number of clients. Taxation does exist in Saudi Arabia, and there are many fields and processes under it. Furthermore, the trainee is gaining a lot of knowledge and technical skills. She is now aware of taxation in Saudi Arabia and is fully capable to calculate company’s returns. The student was able to relate what she learned in university in accounting. It helped her in analyzing the balance sheet and doing the calculations. The internship program was very beneficial to the intern as the employees were helpful and thoughtful. The program was integrated as they provided the interns with training programs, counselors, and buddies. The intern was fully exposed to the duties of a tax associate as she was introduced to all of their operations.

Appendix

Withholding tax form (Attached as PDF)

References: