Saudi Arabia and the United Arab Emirates that make up GCC – are committed to form a common framework for the introduction of value added tax (VAT) in the region. In order to achieve conformity within the GCC, it is anticipated that the six member states will all aim for implementation of VAT during the period commencing 1 January 2018 or by the end of 2018 (The Governments of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar – status unknown due to GCC politics/friction).

VAT as a process will affect many aspects of businesses operating in the GCC and will require significant time to plan, and integrate into existing processes.

Setting the objectives

• To be ready in time and a need of an effective and efficient work process between Tax function, IT function and its third party consultants
• To optimize its VAT deduction and to automate this VAT process as much as possible in SAP
• To limit VAT risks and meet VAT reporting obligations (e.g. reverse charge mechanism to avoid non VAT compliance)
• To automate VAT processes via enhancing the SAP ‘as is’ functionality where possible
• Set up processes and controls when VAT automation is not feasible
• To test new SAP functionality prior to go-live (sandbox)

Based on above objectives the PDF document ‘More detailed description of Work in booklet‘ established the scope, schedule and means of initiating the work to be performed by the service provider and describes or references the specifications, instructions, standards, and other documents, which the service provider shall satisfy or adhere to in the performance of the work.

There are in principle 2 important phases:

• Design a Business Blueprint outlining the implementation of VAT in SAP and supporting systems.  Develop this blueprint through understanding and incorporating the GCC VAT law, Client’s VAT strategy, detailed business requirements and current system landscape.
• Implement the blueprint in conjunction with the Client’s IT team, including testing, training, documentation and go-live support. Develop the appropriate reporting for compliance with GCC VAT between Client’s SAP system and government authorities.

Roadmap: implementation activities for SAP

Implementation activities in SAP IMG for VAT:

• Configure tax procedures for all relevant Gulf countries for VAT solution (Access sequences, Account Key/Condition, Country assignment)
• Create new required tax codes in SAP (transaction FXTP) for all relevant Gulf countries with required parameters
• Configure posting tax amounts based on created tax code for automated tax posting
• Create VAT condition records for all VAT relevant sales scenarios
• Define and update setting for VAT registration numbers

Implementation activities in SAP IMG for Excise Duty:

• To be defined based on the actual requirement: dependent on excise duty calculation/accounting based on sales quantity (comparable with VAT) or movement of goods

Activities related to pricing procedures/policy:

• Review all used pricing procedures
• Add required tax condition types to sales pricing procedures

Activities related to transaction output (billing documents):

Advise on changes to be made to print programs/output types: based on legal requirements:

• Invoice tax text messages (SO10)
• VAT registration number customer
• Tax rates and amounts

Documentation activities:

• Develop and draft documentation for the VAT solution in Gulf countries for  SAP consultants (configuration documentation)
  Develop and draft documentation for the VAT solution in Gulf countries for business users including rate changes, implemented VAT logic and  VAT reporting

Testing activities:

• Unit testing for VAT solution for all Gulf countries

 

Types of VAT GCC transactions

GCC VAT system follows most likely the EU model. From a design perspective the supply chain should be allocated to the following VAT GCC categories:

• Domestic supplies
• Deemed supplies
• B2B GCC intra supplies
• B2C GCC intra supplies
• Import
• Export

All supplies fall within three ‘tax categories’:

1. Standard rated: VAT taxable supplies applicable to most goods and services
2. Zero rated:  VAT taxable supplies applicable to exported goods and services and according to the VAT Act certain appointed domestic supplies
3. VAT exempt

 

Basic Checklist for VAT rate Change:

As a Standard SAP tax code consists of only 2 characters, the number of possible tax codes is limited. Numerous companies use a considerable amount of tax codes and risk facing a “shortage” of the necessary tax codes.

 

Template for SAP implementation roadmap

---

	Roadmap VAT SAP functional design
1.	Review of basic business model from  a VAT perspective	Buy / sell Principal Locations etc.
2.	VAT requirements gathering for all countries in scope	Applicable VAT rates and non deductible rules Tax point date VAT registrations: multiple VAT numbers, fiscal representatives, VAT grouping Invoicing rules, required VAT statements, sequential numbering, time of invoicing, credit notes requirements, self billing for sales and purchasing Currency requirements, boxes of the VAT returns and sales listing Master data for customers, vendors and materials: VAT registration numbers, VAT classifications, goods and/or services
3.	Design based on the requirements the SAP tax codes and specific setting and /or configuration
4.	Design based on the requirements the rules for automated VAT determination logic and tax code structure (VAT condition tables)
5.	Design the required invoice text message: language, reference to law via SAP tax codes or additional logic
6.	Design the setup of ‘plants abroad’
7	Design the processing of intercompany transactions
8.	Design the VAT handling of purchases: automated VAT determination or manual selection of tax codes by AP staff
9.	Design setup of VAT return process and VAT GL accounts