BDO provides insights to businesses on ‘implementation’ of VAT in Kuwait
Getting ready for Value Added Tax
KUWAIT CITY, Sept 28: BDO Al Nisf & Partners (“BDO”), a leading audit, tax and consulting firm in Kuwait and member of BDO International, the world’s fifth largest network of accounting firms, conducted a thought provoking seminar on Sept 26 2016 at JW Marriott on Value Added Tax (“VAT”) that will be implemented in Kuwait and other GCC countries, the impact it will have on the businesses and what companies should do to get ready for this. The seminar was presented by Ivor Feerick — Indirect Tax Partner from BDO Ireland and Rami Alhadhrami — Associate Tax Director in BDO Kuwait.
Earlier in the year, the Minister of Finance in Kuwait, Mr. Anas Al Saleh had announced that the 104th extraordinary meeting of the GCC Financial and Economic Cooperation Committee discussed and approved the two framework agreements on Value Added Tax and Excise Tax. BDO mentioned that Kuwait and UAE have indicated that they will introduce VAT from Jan 1 2018 while other GCC countries Bahrain, Oman, Qatar & Saudi Arabia are likely to introduce VAT any time between Jan 1 2018 — Jan 1 2019.
The seminar was attended by over 100 professionals including key officials from the Ministry of Finance, telecom, oil & gas, as well as from the banking sector and various prominent business groups in Kuwait. BDO explained that VAT at a rate of 5 percent is expected to be introduced in all the G.C.C. countries. Rami Alhadhrami Associate Tax Director at BDO in Kuwait stated that the drop in oil prices has caused GCC governments to cut subsidies and look for other revenue streams. The introduction of VAT is one of them.
The seminar outlined how businesses and consumers as well as the economy as a whole in Kuwait will be affected by the introduction of VAT. Ivor Feerick, Indirect Tax Partner at BDO in Ireland explained the evolution of VAT and how governments worldwide are shifting their focus to Indirect Tax such as VAT, as opposed to Direct Tax such as corporate income tax, as a means for raising tax revenue. Ivor explained that introduction of Indirect Tax is less controversial as the consumers effectively have a choice not to buy goods or services and so can avoid paying VAT. Ivor explained how VAT affects the entire supply chain and provided the audience with a detailed example explaining how VAT is charged throughout the supply chain.
The seminar covered the fundamentals of VAT and how it is different to other forms of taxes. Rami Alhadhrami, Associate Tax Director at BDO in Kuwait, outlined the common VAT compliance requirements that business will need to adhere to, and described differences of accounting for VAT under the ‘invoice’ basis and ‘payment’ basis. Rami clarified that there will most likely be a registration threshold based on annual turnover of a business wherein businesses less that the determined threshold will be exempted but will have the option to ‘elect’ to register for VAT if they wish to do so.
Ivor explained the impact of VAT on imported goods and services as well as the likely VAT impact on intra-GCC transactions. Ivor encouraged business to get ready for VAT as soon as possible, and provided the following key messages for businesses:
a. Set up a VAT champion or VAT implementation team to ensure that each department within the organization is prepared for VAT;
b. Review existing contracts and consider the effect of VAT on such contracts. Ensure that all new contracts state that the price is VAT exclusive;
c. Review the current system to assess its capability of handling VAT; d. Carry out an impact analysis; e. Prepare a roadmap for transition and get ready for implementation.
Rami mentioned that finance ministers of the GCC countries are expected to meet next month to finalize and approve the GCC framework agreement on VAT. Once this is done, it is expected that each GCC country including Kuwait will prepare and issue its own local VAT law and regulations.