Countdown to VAT: What is its Impact on Your Business?

Value Added Tax (VAT) – A tax on transaction; the concept is quite simple in theory, yet from a business perspective, the changes that the tax entails are often huge. It is a fact that the introduction of VAT system in the UAE will not just affect the end-consumers, but will have a deep impact on businesses as well. It won’t be too long to the introduction of VAT in UAE; as of Jan-2018, the UAE will introduce VAT to 5%. So in this context, let us help you get certain important concerns on VAT cleared.

What is the impact of VAT on your business – positive or negative?

VAT, in an ideal scenario, is a mechanism in which the subject supplying goods or services, can deduct the tax paid on purchases from the tax charged to buyers. Hence, the difference between the tax applied to sales and that paid on purchases will be paid to the Government. Even though this is the actual case, there may be a context wherein there is loss in the margin of business due to VAT, if sales and purchase processes are not designed with required controls. Besides, this will certainly increase the pricing of the products to the end-customer. So, the whole business model needs to be carefully reassessed.

What are the business functions that will be impacted by VAT?

The impact of VAT can be felt across several business functions. As most of us might think, VAT implementation is not just an accounting task, but also a business strategy implications for CEO’s as the outcomes will be across pricing, IT systems, supply chain, processes, policies and contracts, and even HR.

How to implement VAT changes effectively in your organization?

In order to implement VAT changes effectively across your organization, it is quite essential that you should understand the new legislation and obligations quite well, and should review the daily activities of the company without fail. Most companies will have to make few changes to their core operations, financial management, and, probably their human resources. Particularly, organizations should:

Determine which all areas of the firm will be affected by the introduction of VAT

Process forms, templates and documents, in order to adapt them to the new rules

Partnering with an efficient IT Team to effectively implement changes in the IT System

Update the accounting section and adapt the financial records

Make sure that the incoming and outgoing invoices are compatible with the new regulations

Adequately train HR department so that everyone understands the changes and the new responsibilities, and prepare accordingly to these aspects within the company

Adjust the contracts with the regulations

Review the tax provisions that are already in place