VAT in GCC: The case for e-invoicing and e-archiving solutions

VAT (Value Added Tax), a tax regime, which is believed to completely transform the way of business transactions used by trading companies across the GCC, either it is an SME/ SMB or a large enterprise. The upcoming tax regime in UAE depends on IT solutions like e-invoice suite and e-archive suite, which makes sure the smooth transactions under the new tax landscape and also guarantees on-going VAT compliance.

How can e-invoicing solutions assist GCC businesses in the implementation of VAT?

To issue VAT invoices as an evidence of a sales transaction is one of the basic implications of VAT implementation for all businesses charging VAT on supplies in the GCC. The businesses are also allowed to issue VAT invoices on paper, but, paper-based invoicing also comes with some challenges for both the selling and the buying party, which includes accounting codification, invoice validation, typing errors, disputes between trading partners arising from overpayment, underpayment, incorrect data. Using electronic invoices instead of the paper invoices can resolve the following issues by introducing full automation and transparency in terms of invoice circulation between sellers/buyers and tax authorities.

Charging VAT on supplies

Under the new VAT regime, businesses across the GCC will have to charge VAT on supplies at a correct rate, which means either a standard rate of 5 percent or a zero rate. The following is considered as an extra administrative burden, which will be time-consuming as well as error-prone for the trading companies along with a big volume of invoices on a regular basis. Still, the e-invoicing solution can make this process easy by automatically matching a correct VAT rate to a specified product.

Calculating VAT Deductible

As per the guidelines of VAT, companies across the GCC will need to calculate VAT deductible on the purchases. Electronic invoicing can be proved to be very helpful in this area, as it automatically calculates the correct amount and removes the requirement of manual calculation of deductible VAT.

Calculation of the total amount of VAT to refund

After the implementation of VAT, another problem to be considered by the companies is calculating the total net amount of VAT to pay or to refund. However, companies around the GCC are undoubtedly capable of calculating the VAT amount manually, without the help of any enterprise solution, but the electronic invoicing can also help you out in this. The e-invoice suits come with accurate validation mechanisms, which can calculate the exact amount to refund under VAT.

Cash Flow

After implementing VAT, the improved cash flow will become even more important than before for the companies and businesses around the GCC, as the settlement of bills and the fast collection of payments is directly connected to the working capital of any company.

With the help of an e-invoicing solution, the cash flow management will automatically get accelerated because both the buyer and the seller can easily check the payment status as well as can verify the invoice status in the system.

As a result, businesses using e-invoicing much of their time of VAT recovery on costs. Let’s put the VAT considerations aside for a moment and understand the full potential of e-invoicing. Both the buyer and the seller have to perform a number of activities to process each paper invoice, which becomes useless while adopting e-invoicing, including document printing, mailroom services, postal services among others.

What will be the impact of VAT introduction on document archiving and how will electronic archiving makes this process easy?

The first morning of 2018 will bring a new tax regime in the GCC, under which all the businesses will have to implement VAT and will need to keep a complete record of transaction documents i.e. invoices, records, accounts, VAT returns, etc. Moreover, the sorting paper documents also come with the additional administrative burden and additional cost i.e. for space rental. Considering this, the electronic archiving seems to be a reasonable move, as it comes with convenient access to all transaction documents for any tax audit, which easily complies with the legal requirements.

It is very difficult for an electronic archiving solution to provide extreme or proper security measures. So, if someone says that the documents or information stored in the electronic archive are safer than a hard copy in the traditional archive, then that person is lying. The proper data security can only be achieved by opting e e-archive solutions, which is capable of incorporating time stamping and access control. Timestamp among them basically makes sure that a document has not been changed since its origin, and guarantees a correct issue as well. On the other hand, under access control, the business owner can provide access to the archive only to selected users, and will always able to see who and when viewed or edited a given transaction document.

Furthermore, the event of tax audit also allows giving a temporary access both to a printable document and an original file of this document to the audit authority. Considering the binding law on electronic transactions in the GCC, both time stamping and access control meet the legal requirements stated in the Federal Law No. (1) of 2006 On Electronic Commerce and Transactions.

Name the most important issues to discuss with an IT provider in the light of VAT implementation in the GCC

This is the correct time for businesses in the GCC to allocate available technological capabilities of existing IT solutions and to implement latest enterprise software before VAT implementation. Concerning the e-invoicing technology, the businesses and companies across the GCC should start looking for e-invoice providers, which offers a wide spectrum of e-invoicing technologies legally compliant along with the new VAT regulations.

e-invoicing solutions

The most rumored technological solution in the current market includes:

EDI Invoice Suite (Electronic Data Interchange)
PKI Invoice Suite (Public Key Infrastructure)

The selection of an appropriate e-invoicing technology is completely bounded by the number of invoices handled by a given company. The EDI invoicing facility is strongly recommended for the companies, which have a large number of invoices for both issuers and recipients, whereas the PKI invoicing facility is recommended for the companies, which have a huge total number of invoice recipients but also have a small number of invoices per a single recipient.

Another critical issue arises with the selection of invoice type is its software integration. System integration with ERP or accounting will have to attain 100 per cent automation, where no manual workload is required. By collaborating with an IT service provider, business holders will be capable of capturing invoices and to deliver them to the financial system in a completely automated manner.

For enhancing the accuracy of data, the businesses will have to choose the solutions with a multi-level validation engine, under which all the electronic invoices are validated in terms of size, e-signature, master data, content, EAN-codes from each other.

As a conclusion, we have to say that certain time is required for business holders to get prepared for VAT implementation, still properly planned and conducted VAT implementation will undoubtedly lead to complete VAT compliance along with the achievement of the automatic business process.

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