With VAT being introduced in January 2018 across the GCC, the process of invoicing gets as important as never before. VAT adoption implies that companies charging VAT on supplies will have to issue VAT invoices as an evidence of a sales transaction. Invoices can be issued and exchanged with business partners in paper, however, it is the electronic invoicing, or e-invoicing, that can ensure a smooth transition of your business to the new VAT regulations. Let’s examine the key requirements under VAT and explore how e-invoicing can help introduce full transparency in terms of invoice circulation (between sellers/buyers and tax authorities) and avoid any potential penalties arising from non-compliance.
Charging VAT on supplies
Under VAT, companies across the GCC will be required to charge VAT on supplies at a correct rate (standard 5% rate, zero rate). This new duty will be particularly time-consuming to trading companies with a big volume of invoices. Yet, e-invoicing solution can be a big help in this area, since it can automatically match a correct VAT rate to a particular product.
Calculating VAT deductible
VAT introduction implies the necessity to calculate VAT deductible on purchases. This new regulation can be easily covered by an e-invoice suite which automatically calculates the correct amount so there is no need to run the numbers manually.
Calculating the total net amount of VAT to pay / to refund
Following the introduction of VAT, GCC companies will be obliged to calculate the total net amount of VAT to pay or to refund. E-invoicing is an answer to this challenge. Thanks to validation mechanisms embedded in the e-invoice suite, the net amount is always checked for its accuracy before being processed any further.
Under VAT, companies should give better attention to their cash flow management. Why? Cash flow management, i.e. settling bills and collecting payments, is directly linked to the timing of VAT recovery on costs. Electronic invoicing solution by far improves accounts payable and accounts receivable processes. As a consequence, VAT recovery on costs takes place faster.
Apart from VAT compliance, e-invoicing delivers extra value to businesses, both sellers and buyers. Electronic invoicing solves a number of challenges that each business that issues or receives paper invoices knows only too well: typing errors, disputes between trading partners arising from overpayment, underpayment, incorrect data, long invoice validation period, incorrect accounting codification to name just a few. By switching from paper invoices in favor of electronic invoices companies easily resolve these issues and introduce full automation in terms of invoice circulation.
If you're looking for more information about VAT in GCC & Tech considerations, we recommend you to read our recent insights in Intelligent CIO Middle East!