How to get started on VAT in the Gulf

With value added tax arriving in less than a year, how can your business prepare for the new requirements?



It’s official: 2018 will see the start of implementation of a value added tax (VAT) across the Gulf States.

The recent slide in oil prices worldwide has diminished the amount of revenue flowing into the six-member Gulf Cooperation Council (GCC) – which includes Saudi Arabia, the United Arab Emirates, Bahrain, Qatar, Kuwait and Oman – prompting the International Monetary Fund. to recommend a VAT to diversify the revenue stream across these countries.

The Kingdom of Saudi Arabia recently approved a 5 per cent tax after considering these recommendations.

More to the point, GCC countries are aware that the halcyon days of oil production won’t last forever; more and more countries are exploring other, greener forms of energy and GCC leaders recognise the need to diversify their economies in readiness for the day when the oil bubble bursts.

VATs have long been a standard source of revenue for other governments, including EU countries, Canada, Australia and many others. But this is the first time that companies in the GCC will have to collect it — and some reports indicate that they are facing challenges, which they are working to overcome.

This is not surprising. VAT is collected at nearly every stage of the supply chain, from raw materials to the final product sold in stores. Ultimately, the consumer ends up paying for the tax, but businesses are still responsible for collecting the money on behalf of the government, and reporting on how much they collected, along with how much they were able to deduct based on their own costs.

It is therefore important to make provisions and plan ahead, and to bring a culture of change management to the organisation.

The vast majority of GCC companies will not only need to ensure they accurately determine and report on VAT requirements but, even more importantly, do it efficiently by automating this whole new process.

How can your company become compliant?

Fortunately, there are experts that have been dealing with VAT for decades in other countries. Here at Oracle we have helped thousands of companies the world to comply with local VAT requirements. New approaches include connecting VAT cloud services to on-premises ‘enterprise resource planning’, simply taking the opportunity to fully modernise the enterprise by deploying ERP in the cloud.

In either case, there is a benefit to placing tax functionality in the cloud — namely you always have access to the latest version of the software. Unlike on-premises systems, which require lengthy upgrades, cloud applications are updated by the vendor on a regular basis. So if the amount of the VAT changes, or if another tax regulation is put in place, that functionality will be rolled out with the next release.

And with the cloud, either of these approaches can be completed in a much shorter time frame than an on-premises implementation. Cloud implementations typically take weeks rather than years, which is important considering that the VAT deadline is only a year away.

Knowing where to start

Where do you start to determine which approach is best for you? Do you deploy a new ERP in the cloud? Keep your core ERP and connect cloud VAT services? Or move some of your finance functions to the cloud?

There are a number of factors to consider:

  • What is the age of your existing ERP system? Are you running the latest version of the software, or are you on an old edition?
  • In how many countries do you do business? The more geographies, currencies and languages you operate in, the more rules, regulations and compliance issues you will need to consider. It might be worth a full-scale migration to cloud in order to keep on top of all of the permutations.
  • How many transactions does your ERP process in a day? The higher the transaction volume, the more important it is that your core system be scalable enough to meet demand.
  • Are you looking at a full ERP replacement in the near future? If so, it might make sense to take a phased, ‘outside-in’ approach — starting with tax applications in the cloud to meet the immediate VAT deadline, and then moving core ERP to the cloud at a later date.

No matter which approach you decide on, VAT is coming and every GCC business will need to comply. I recommend that you form a project team as soon as possible to understand how VAT will impact your business and operating model.

Assess the capability of your existing systems to comply with the new regulations and then choose an implementation partner and a software vendor with the experience and capabilities to meet your needs.

Arun Khehar is senior vice president of applications ECEMEA at Oracle