Taxes ppt

VAT in Oman

Where are we today?

Where are we today?

Timing

Zero-rated or exempt?

Following the signing of the Gulf Cooperation Council (GCC) VAT Framework Treaty, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) introduced VAT effective from 1st January 2018. Other GCC members are looking to implement VAT soon. The Treaty acts as the basis for domestic VAT legislation by stipulating certain principles, which must be followed by all members, while allowing the countries to opt for different VAT treatments and approaches.

Zero-rated or exempt?

The Treaty provides that VAT on the supply of goods or services within the scope of VAT will generally be charged at a standard rate of 5%, unless the goods or services are exempt or zero-rated. GCC members have been granted the flexibility to choose whether the supply of specific goods or services are treated as zero-rated or exempt.

Why is this important in an Omani context? The distinction between zero-rating and exemption is an important one; in both cases VAT is not accounted for on the supply at a positive rate, a supplier making exempt supplies is generally not allowed to recover input VAT in relation to such supplies. Recovery of input VAT incurred in relation to zero-rated supplies is generally allowable.

Categories specified by the Treaty include: Must zero-rate: • Medicine and medical equipment • Cross-border goods and passengers transportation services • Goods exported outside GCC territory • Certain cross-border supplies of services

May zero-rate: • Certain food items • Supply of transportation for commercial purposes • Oil, oil derivatives and the gas sector

Can zero-rate or exempt: • Education sector • Healthcare sector • Real estate sector • Local transport sector

Must exempt: • Financial services (with some flexibility to tax) • Importation, if the goods are exempted from customs duty or exempted or zero-rated from VAT in the specific member state

As adopted in the UAE and KSA, we have set out below sector-specific VAT treatment at the time of writing (note these will change and evolve so check if you have specific questions or want to apply rules to individual transactions):

Timing

In Oman, we understand that the local VAT legislation, regulations and guidance is under preparation and review by the government.

Sector UAE KSA

Financial

services

Fee based services: Taxable

Margin based services: Exempt

Fee based services: Taxable

An implicit Margin based services: Exempt

Insurance All non-life insurance: Taxable

Life insurance: Exempt

All non-life insurance: Taxable

Life insurance: Exempt

Food items All taxable All taxable

Education Specified services: Zero rated Taxable

Health Specified services: Zero rated • Taxable (Private Healthcare Providers)

• Services provided by government

healthcare provider are considered to be

provided in the capacity of a public body.

These activities will therefore fall outside

the scope of VAT

Medicines and

medical

equipment

Zero-rated (identified in a

decision issued by the Cabinet)

Zero-rated (qualified medicines and

qualified medical equipment)

Real estate The first supply of residential

buildings within (3) years of its

completion: Zero-rated

The first supply of buildings

converted from non-residential

to residential: Zero-rated

Residential rental: Exempt

Bare land: Exempt

New housing: Zero rated

All other real estate: taxable

Residential rental: Exempt

All other real estate: Taxable

Local transport Exempt Taxable

Oil and gas Specified products: Zero-rated All taxable

Export Zero-rated Zero-rated

International

transport

Zero-rated Zero-rated

Investment

metals

Zero-rating the supply or import

of investment precious metals

• Zero-rating to the first supply of a

qualifying metal by its producer or

refiner as defined

• Zero-rating on any grant, assignment or

surrender of a right, interest or claim

with respect to any supply of a qualifying

metal for investment as defined

VAT and the impact areas in the implementation cycle

• Effect on demand • Pricing strategies • Impact on current pipeline and inventory • Treatment of exports

• Communication changes in business practices • Structure of offers/financing • Support mechanisms and incentives

• VAT impact on contracts - Current contracts - Future contracts

• Impact on cash flow • Identification of transactions and VAT liability • Maximization of VAT input tax credit on purchases • Registration & compliance • Need to be more involved

• Systems review and changes for VAT compliance

• VAT impact on corporate plans e.g. restructuring, new projects and transactions • Clarification of issues and treatment with tax authorities • Interaction with your supply chain

• End of current business tariffs and charges • Preference for VAT registered vendors to maximise ITC • Use of self-billing/other billing best practices to maximise credits • Imports of capital goods and raw materials

• Education and communication • Training

Sales and marketing Legal Information system Internal/Human capital

Customers Finance and administration Strategy Suppliers

Impact

Standard rate

Prepare early – what to think

about now

Impact

VAT will impact most industries, but in our experience in particular: • Consumer and industrial products • Technology, media and telecommunications • Financial services • Real estate

Prepare early – what to think about now

Uncertainty around implementation dates is no reason to delay thinking about readiness steps your business should take. Preparation is key because VAT liabilities are generally self-assessed, with errors often subject to severe penalties and time consuming interactions with local tax authorities, or worse, causing a business disruption. Finance and operational teams in the business need to identify and claim necessary resources early.

The risks of getting it wrong are potentially enormous

The obvious point on risks has a number of aspects: Reputational • The legal requirement under VAT rules is usually to pay the right amount of tax, at the right time. The ability to pay the right amount of tax depends on whether an organization is fully versed with its tax obligations and understands how to meet them • Failure to meet these obligations can lead to ongoing public perception challenges and a difficult relationship with authorities

Operational • The operational imperative is to maintain business operations-business-as-usual principles - over the course of a tax implementation • Disruption of procure to pay and sell to receive processes will give rise to major operational difficulties with logistics unable to import goods, sales unable to raise invoices, etc.

Financial • The business-as-usual principles under VAT can, depending on the level of preparation undertaken, create substantial cash-flow and absolute tax costs • The inability to sell goods and services due to a failure to implement the necessary changes in time can lead to major revenue shortfalls • Financial penalties for errors levied by tax authorities can be significant

Standard rate

The standard VAT rate will be 5% in all six GCC countries. This is significantly lower than the OECD average VAT rate (currently approximately 19%).

Common pre-implementation actions

There are a number of actions businesses can take long before VAT is implemented to determine their systems, processes and contractual arrangements are ‘ready to go’. Immediate actions include: • Assess VAT readiness with GCC VAT Review Smart (VRS), Deloitte’s online assessment tool, which considers everything from the financial impact of VAT, through to staffing and accounting processes • Developing roadmaps through to VAT implementation date(s) and develop a resourcing plan to identify the work necessary to be ready to submit VAT returns • Business and industry groups should begin lobbying authorities long before draft legislation is released • Mapping your transaction footprint to determine all future VAT liabilities so that compliance obligations are easily overlaid • Reviewing and updating contractual arrangements with vendors and customers to determine each party is aware of its responsibilities for paying and accounting for VAT • Including appropriate clauses in contracts and implement changes to contractual terms, where necessary, e.g. to manage VAT costs in vendor contracts or future pricing/revenue in customer contracts

Common pre-implementation

actions

The risks of getting it wrong are potentially enormous

This publication has been written in general terms and therefore cannot be relied on to cover specific

situations; application of the principles set out will depend upon the particular circumstances involved

and we recommend that you obtain professional advice before acting or refraining from acting on any of

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