Frequently Asked Questions PUBLIC

GCC VAT
Document Version: 2.1 2017-04-05

VAT for GCC Countries - FAQs

SAP Globalization Services

Document History

Version Date Change

1.0 2017-04-04 Initial version

1.1 2017-04-05 Feedback from service owners

2.1 2017.05.03 Add the GCC VAT Framework Agreement

PUBLIC VAT for GCC Countries - FAQs

2 2017 SP SE or an SAP affiliate company. All rights reserved. Document History
Contents

1 Generic Questions............................................................................................................. 4
1.1 What is VAT?........................................................................................................................4
1.2 What is the different between VAT and sales tax? ................................................................4
1.3 How is VAT applied/calculated?...........................................................................................4
1.4 When will VAT be applied in GCC? ........................................................................................ 5
1.5 What are the preparations required to comply with VAT law? ...............................................6
1.6 What is the expectation of the Tax Authority from businesses? ............................................ 7

2 Questions Related to VAT in SAP .................................................................................... 8

2.1 Do SAP ECC and S/4HANA cover basic VAT scenarios? ......................................................8
2.2 How does SAP determine VAT? ...........................................................................................8
2.3 What is SAP localization plan for VAT computation? ............................................................9
2.4 What is the content of a country template? And is it must to use it? .....................................9
2.5 What is the Tax Service "TaaS"?......................................................................................... 10
2.6 What are the prerequisites to implement TaaS? ................................................................. 10
2.7 What are the use cases for TaaS?....................................................................................... 10
2.8 What is SAP localization plan for VAT legal reporting?........................................................ 10
2.9 What is SAP S/4HANA for Advanced Compliance Reporting ACR? .................................... 10
2.10 What are the prerequisites to implement SAP S/4HANA ACR? ........................................... 11
2.11 What are the use cases for SAP S/4HANA ACR?................................................................. 11
2.12 What is the SAP Localization Hub, Advanced Compliance Reporting Service "SLH-ACR"? .. 11
2.13 What are the prerequisites to implement SLH-ACR? ........................................................... 11
2.14 What are the use cases for SLH-ACR?................................................................................. 11
2.15 How does SAP support VAT compliance? ........................................................................... 11
2.16 Is it must to use SAP VAT deliverables/solutions together? ............................................... 12
2.17 What is the expected delivery timeline for above localization for GCC?............................... 12
2.18 How can SAP customers get the VAT release status? ........................................................ 12

3 References........................................................................................................................ 13

4 Disclaimer......................................................................................................................... 14

VAT for GCC Countries - FAQs PUBLIC

Contents 2017 SP SE or an SAP affiliate company. All rights reserved. 3
1 Generic Questions

1.1 What is VAT?

VAT is an indirect tax applied on the consumption of most goods and services. VAT is levied by VAT-
registered businesses that supply goods and services in the course or furtherance of their business. VAT is
also applicable on the import of goods.
VAT is levied at each stage in the supply chain and is collected by businesses on behalf of the government.
VAT is ultimately incurred and paid by the end consumer.

1.2 What is the different between VAT and sales tax?

A sales tax is also a consumption tax, just like VAT. For the general public, there may be no observable
difference between how the two types of taxes work, but there are some key differences. In many countries,
sales tax is only imposed on transactions involving goods. In addition, sales tax is only imposed on the final
sale to the consumer. This contrasts with VAT which is imposed on goods and services and is charged
throughout the supply chain, including on the final sale. VAT is also imposed on imports of goods and services
so as to ensure that a level playing field is maintained for domestic providers of those same goods and
services.
Many countries prefer a VAT over sales tax for a range of reasons. Importantly, VAT is considered a more
sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of the government
and cuts down on misreporting and tax evasion.

1.3 How is VAT applied/calculated?

VAT-registered businesses charge and add VAT to the value of goods and services they supply. Such
businesses can also reclaim VAT incurred on goods and services acquired for business purposes (subject to
some restrictions), such as the purchase of raw materials and other consumables used for the purposes of
business. For imports, VAT is charged at the first point of entry into home consumption (when customs duty
may also apply).

VAT for GCC Countries - FAQs PUBLIC

Generic Questions 2017 SP SE or an SAP affiliate company. All rights reserved. 4
Consider the example depicted in the figure below.

The following tables explain a simple scenario to explain how VAT is calculated by the three companies, the
manufacturer, the distributor, and the seller.

Manufacturer Before VAT VAT Collected VAT Credit After VAT

Sales 1000 $ 50 $ 1050 $

Purchase 0$ 0$ 0

VAT to revenue 50 $ 0$ 50 $
authority

Distributer Before VAT VAT Collected VAT Credit After VAT

Sales 1200 $ 60 $ 1260 $

Purchase 1000 $ (50) $ (1050) $

VAT to revenue 60 $ (50) $ 10 $

authority

Seller Before VAT VAT Collected VAT Credit After VAT

Sales 1400 $ 70 $ 1470 $

Purchase 1200 $ (60) $ (1260) $

VAT to revenue 70 $ (60) $ 10 $

authority

1.4 When will VAT be applied in GCC?

VAT is likely to be introduced across the GCC on January 1, 2018. The rate will be low and is likely to be 5%.

VAT for GCC Countries - FAQs PUBLIC

Generic Questions 2017 SP SE or an SAP affiliate company. All rights reserved. 5
1.5 Which GCC member state has officially announced the
adoption of unified GCC regime?

Saudi Arabia, United Arab Emirates and Qatar are the first members of the six-member GCC to officially
announce the adoption of the unified GCC VAT regime.

The 3 countries official have indicated that the VAT regime will be applicable from 1 January 2018 and a 5%
levy will apply to selected goods as set forth in the GCC agreement

1.6 When will GCC VAT regime be applied?

The 2 members state Saudi Arabia and United Arab Emirates have officially indicated that the VAT regime will
be applicable from 1 January 2018 and a 5% levy will apply to selected goods as set forth in the GCC
agreement

1.7 What are the key features of the Gulf Cooperation

Council (GCC) Value Added Tax (VAT) Framework
Agreement?

The standard VAT rate will be 5% unless a zero rate or exemption applies.

The Member States have the right to subject the following sectors to a zero rate or to exempt them
from VAT:
o Education
o Health
o Real estate
o Local transport

The Member States have the right to subject the oil sector, petroleum derivatives, and gas to a zero
rate of VAT.

Individual GCC countries have the right to subject certain food products to a zero rate of VAT.

The Member States have the right to subject medical supplies to a zero rate of VAT.

Intra-GCC and international transport will be subject to a zero rate of VAT.

The export of goods to jurisdictions outside of the GCC Member States will be subject to a zero rate
of VAT.

The Member States have the right to exempt Financial Services from VAT. The term financial
services is not defined but broadly the exemption will generally relate to dealings in money,
securities, foreign exchange and the operation and management of loan accounts, deposits, trade
credit facilities and related intermediary services. The exemption is not expected to extend to fee
based services transacted by a financial institution. However, Member States may choose to apply
different VAT treatments to financial services if they wish.

Supplies of goods and services from a VAT registered person in one Member State to a VAT
registered person in another Member State are subject to the reverse charge mechanism.

VAT for GCC Countries - FAQs PUBLIC

Generic Questions 2017 SP SE or an SAP affiliate company. All rights reserved. 6
 VAT grouping appears to be permitted between two or more legal persons resident in the same
Member State.

The treatment of GCC free zones is not addressed and it is left to each Member State to determine its
own VAT treatment for free zones.

Businesses with an annual revenue of over SAR375,000 will be required to register for VAT purposes.

Businesses with an annual revenue between SAR187,500 and SAR375,000 will have the option to
register for VAT purposes.

1.8 What are the preparations required to comply with VAT

law?

Given your business complexity and volume of business transactions, it could take you a substantial amount
of time to evaluate and map your business transactions. This is a critical step in your implementation project
and is something that can be started prior to the legislation. Also, reviewing existing systems would help you
anticipate the size of the changes and efforts required.
System readiness and configurations (this is the focus of this document)
Master data readiness
Chart of account updates
Organization change management

1.9 What is the expectation of the Tax Authority from

businesses?

Registration: Mandatory registration for VAT for all businesses exceeding a specific VAT registration
threshold. In simple terms, only businesses that meet a certain minimum annual turnover requirement
will have to register for VAT.
Submission of Legal Reports:
o Filing of periodic VAT returns with the tax authorities (either monthly or quarterly)
o Remitting any VAT payable by a specified date.
Record keeping: For all business transactions:
o Tax invoices
o Debit or credit notes
o Import and export records
o Records of goods/services provided for free or allocated for private use
o Zero rated or VAT exempt supplies and purchases
e-Invoice: Copy of all customer invoices to be replicated at government system (expected to be future
requirements)

VAT for GCC Countries - FAQs PUBLIC

Generic Questions 2017 SP SE or an SAP affiliate company. All rights reserved. 7
2 Questions Related to VAT in SAP

2.1 Do SAP ECC and S/4HANA cover basic VAT scenarios?

SAP ECC and S/4HANA cover basic VAT scenarios and functionalities such as domestic transactions and
simple, direct intracommunity supplies. These transactions comprise the majority of invoice flows.

2.2 How does SAP determine VAT?

At first sight, VAT derivation seems to be a financial

process and should consequently take place in the SAP
Finance (FI) module. This is partly true because VAT
bookings are ultimately reported in the VAT book in the
general ledger within SAP FI.
However, actual VAT determination from a sales
perspective starts within the SAP Sales and Distribution
module (SD). For example, after creating a sales order or
a quotation, the pricing schemes are executed for the
first time. The standard VAT derivation functionality is
embedded in these overall pricing schemes. Based on the
available transaction data (for example, combination of
customer, sales organization), the system decides which pricing scheme to choose. The goods flow forms the
leading principle for VAT. The SAP Materials Management (MM) module is the third module used to follow the
goods flow within SAP during the VAT derivation process. Goods (and services) are sent from plants to
customers. Information about materials and plants is maintained in the SAP MM module.
The customizing settings within these three modules combined form the basis for a correct embedding of
VAT within SAP.

VAT for GCC Countries - FAQs PUBLIC

Questions Related to VAT in SAP 2017 SP SE or an SAP affiliate company. All rights reserved. 8
2.3 What is SAP VAT Product Offering?

2.4 What is SAP localization plan for VAT computation?

There are two ways for VAT calculation:

Using the backend configurations for SAP ECC or S/4HANA (SAP will support these using release of a
country template for VAT in GCC)
Using SAP Localization Hub, tax service (API available on SAP cloud platform)

2.5 What is the content of a country template? And is it

must to use it?

As the VAT legal framework is not yet issued by governments, SAP plans* to deliver a country template
including VAT configurations that could be used (or as a guide) to customize SAP system.
Here is an example of an Egypt VAT country template that was released last year (SAP note 2376143):

VAT for GCC Countries - FAQs PUBLIC

Questions Related to VAT in SAP 2017 SP SE or an SAP affiliate company. All rights reserved. 9
2.6 What is the Tax Service "TaaS"?

SAP Localization Hub, tax service offers a global tax calculation service which can be seamlessly integrated
into customer and partner solutions. This service, in combination with other globalization capabilities offered
by the SAP Localization Hub, enables customers to easily maintain their business landscapes while
accelerating time-to-market & gaining scale. Currently it covers 120 countries (including Egypt from MENA),
and SAP plans* to update the service for GCC countries when the laws are declared.

2.7 What are the prerequisites to implement TaaS?

You need to obtain an SAP Cloud Platform, aka HCP license (example: bundle material code 8004744 the
premium package)
You need to integrate TaaS with all invoicing/billing transactions at customer different systems

2.8 What are the use cases for TaaS?

Customer planning a global rollout of an in-house innovation or a web shop

Multi-national companies planning to streamline localization and centralize tax computation for their
system landscape as a single source of truth
Customers using an ERP or Omni-channel (like S/4HANA or Hybris) looking for a tax provider

2.9 What is SAP localization plan for VAT legal reporting?

There are two ways for VAT legal reporting:

For S/4HANA customers: SAP S/4HANA for Advanced Compliance Reporting "ACR"
For other customers (ERP or none-SAP): SAP Localization Hub, Advanced Compliance Reporting service
SLH-ACR

2.10 What is SAP S/4HANA for Advanced Compliance

Reporting ACR?

SAP S/4HANA for Advanced Compliance Reporting offers:

Single and uniform user interface for all statutory reporting.
Supports multiple legal formats such as XML, XBRL, TXT, PDF forms.
Lower costs by enabling easier adoption of legal changes
Online communication with Government authorities

VAT for GCC Countries - FAQs PUBLIC

Questions Related to VAT in SAP 2017 SP SE or an SAP affiliate company. All rights reserved. 10
2.11 What are the prerequisites to implement SAP S/4HANA
ACR?

You need to obtain an SAP S/4HANA OP license or S/4HANA Cloud License

2.12 What are the use cases for SAP S/4HANA ACR?

Customers using S/4HANA OP

Customer using S/4HANA Cloud

2.13 What is the SAP Localization Hub, Advanced

Compliance Reporting Service "SLH-ACR"?

SAP Localization Hub-ACR offers:

Single and uniform user interface for all statutory reporting.
Supports multiple legal formats such as XML, XBRL, TXT, PDF forms.
Lower costs by enabling easier adoption of legal changes
Online communication with Government authorities

2.14 What are the prerequisites to implement SLH-ACR?

- You need to obtain an SAP Cloud Platform, aka HCP License. Same license can be used for both TaaS
and SLH-ACR
- SAP Forms as a Service (priced per 100,000 forms HCP Cloud solution) with material code
8003528 is required for legal reporting in PDF formats ADS Adobe Document services

2.15 What are the use cases for SLH-ACR?

Planned* for all SAP and Non-SAP customers

2.16 How does SAP support VAT compliance?

SAP supports VAT compliance through SAP tax compliance product under GRC-Fraud management. The
solution offers the following benefits to customers:
Provides enterprise-wide repository of compliance checks that can be optimized with simulations
Seamlessly captures information from multiple sources and checks high volumes of taxable transaction
and posting data very fast

VAT for GCC Countries - FAQs PUBLIC

Questions Related to VAT in SAP 2017 SP SE or an SAP affiliate company. All rights reserved. 11
 Automatically triggers and documents corrections within current declaration period with the ability to
navigate back to originating document in the source system.
The values of the solution:
Enables an automated internal tax control/compliance framework.
Provides reliable insight into your tax compliance status and remediation documentation
Protects your enterprise from fines and your personal liability risks for non-compliance

2.17Is it must to use SAP VAT deliverables/solutions

together?

No, it is not a must

2.18 What is the expected delivery timeline for above

localization for GCC?

At the moment we don't have enough information to share our delivery plan and we will keep you updated
once we have more clarity.

2.19 How can SAP customers get the VAT release status?

Visit the site: Announcements of Legal Changes

VAT for GCC Countries - FAQs PUBLIC

Questions Related to VAT in SAP 2017 SP SE or an SAP affiliate company. All rights reserved. 12
3 References

https://mof.gov.ae/En/budget/Pages/VATQuestions.aspx
http://www.pwc.com/m1/en/services/tax/vat-in-the-middle-east.html
https://www2.deloitte.com/bh/en/pages/tax/articles/VATinTheGCC-VATimpactintheGulf.html
https://www.gazt.gov.sa/dzit_logon/MenuItems.jsp?menu_id=vat&portalapp=x&ume.logon.locale=en
http://www.uqn.gov.sa/articles/1492752507552176200/

VAT for GCC Countries - FAQs PUBLIC

References 2017 SP SE or an SAP affiliate company. All rights reserved. 13
4 Disclaimer

VAT for GCC Countries - FAQs PUBLIC

Disclaimer 2017 SP SE or an SAP affiliate company. All rights reserved. 14
www.sap.com/contactsap

for more details, please contact

SAP Globalization Services in
MENA:
[email protected]
[email protected]
[email protected]

2017 SP SE or an SAP affiliate company. All rights reserved.

No part of this publication may be reproduced or transmitted in any
form or for any purpose without the express permission of SAP SE
or an SAP affiliate company.
SAP and other SAP products and services mentioned herein as well
as their respective logos are trademarks or registered trademarks of
SAP SE (or an SAP affiliate company) in Germany and other
countries. All other product and service names mentioned are the
trademarks of their respective companies. Please see http://www.
sap.com/corporate-en/legal/copyright/index.epx#trademark for
additional trademark information and notices.

Material Number: