In a brief and exclusive interview with MEP Middle East, SamEmery, finance director at UAE-based facilities management company Emrill, talks about the implications of VAT introduction on the MEP sector in the UAE and tips on how to plan ahead.
How have you (Emrill) prepared yourself for VAT?
VAT preparations are currently underway at Emrill and here are a number of key tax planning initiatives that Emrill will be implementing:
Education and training: The level of staff competency in VAT administration matters is of primary importance. VAT, and indeed tax in general, may be a new concept to many finance department staff members, especially for companies in the UAE where there is no history of compliance regulations. At Emrill, we are currently planning to provide VAT training to improve general awareness and understanding for both the finance department and the wider business. Once the Ministry of Finance finally announces the full rules and regulations later this year, further detailed training will be rolled out
Financial administration system compliance: Emrill is currently reviewing its internal financial systems and capability for handling VAT. The question is how to build it into the business structure while ensuring compliance with VAT rules at the same time. Utilising an automated financial administration system will be the key driver to calculating the correct amount of VAT payable. Without this, incorrect VAT returns may be submitted which could also lead to overpayments of VAT, negatively affecting the company’s cash flow and financial position
Cash flow planning: In order to ensure the most effective cash flow management, it’s important to understand the various risks and opportunities that exist. Emrill have approached this by reviewing not only its long term contracts but also current agreements to ensure the best outcome for cash flow planning purposes. VAT will need to be paid to the relevant authorities by a specific date, irrespective of whether cash has been received from customers. Therefore, poor cash flow planning could lead to additional pressure on working capital.
Document control: Since the completion and submission of VAT returns to the tax authorities will require supporting documentation, Emrill is currently reviewing its complete storage and document control solutions to ensure that documents can be filed and retrieved efficiently.
What are some of the implications on the MEP sector you foresee with the introduction of VAT?
The implications are expected to be the same for the majority of sectors with some differences within certain specialist industries such as the real estate and financial services sectors. Essentially an additional 5% VAT charge (with specific rules subject to announcement by the Ministry of Finance) will be applied by businesses on all goods and services sold (except where zero-rated or exempt).
General implications for businesses may include an additional administrative burden on staff, stress on working capital as a result of little or no prior cash flow planning, and lack of understanding as a result of no training or investment in education: this could lead to incomplete VAT returns ultimately resulting in fines and penalties.
What will be the short-term problems and the long-term benefits associated with VAT, according to you?
All companies will have an initial period of adapting to the new requirements. Some companies will find it easier than others depending on the complexity and volume of transactions, and the competency levels of existing accounting staff. In the short term, problems may arise from the lack of understanding of applicable transactions, additional administrative requirements, and the introduction of new modules within the finance system. In addition, some companies could experience cash flow issues, as VAT payments need to be made on time in order to avoid fines and penalties.
On the other hand, if companies spend time in the planning phase, then over the long term they can benefit from overall process efficiencies including effective documentation control and a more effective approach to cash-flow planning, albeit forced on them by the new tax regulations.
Top 5 planning tips:
Article source: MEP Middle East