Preparing for VAT: Challenges for businesses

VAT is a certainty now. What we don’t know, is when it will be effective in Oman, but it cannot be later than by January 1, 2019. The introduction of a new tax requires preparation from businesses, government, accountants and tax advisers. Businesses have the tendency to postpone preparing for the VAT until the legislation is published, but by doing so they render the risk of not being fully prepared when the tax comes into effect.

Dr Robert brederode

It is really ill-advised to postpone preparing for the inevitable. Because the VAT Framework Agreement has been published, businesses can prepare in general and fill in the details later when the local law is published. What steps to take?
First, any business needs to determine on the basis of its total sales volume whether it has to register for VAT or whether it is covered by the small trader exemption. In the latter case, small businesses need to assess whether voluntary registration would be beneficial, and they may need external advice to make that determination.
Next step is to make an analysis of all business transactions for tax determination purposes. A business must know which transactions will be subject to the 5 per cent VAT, which ones are zero-rated and which ones are exempt to ensure it can charge the correct amount of VAT.  In case of cross-border activities, it must be determined in which countries a business needs to register for VAT.
On the procurement side of a business, one needs to verify the correctness of incoming invoices. Therefore, procurement transactions need to be assessed proactively for tax determination as well.
Subsequently, an analysis must be made to determine the extent of which input-VAT can be recovered which depends on whether the goods and services procured are used for business purposes and if so whether they are fully or partly used for making exempt supplies.
Work processes for VAT need to be designed, ie, a Tax Control Framework for VAT. Accounting staff, including accounts payable and receivable, needs to be trained in VAT compliance requirements and the procedures to follow. The legal department, shipping, and sales need to have a minimum understanding of VAT. VAT related communication lines need to be established and it is recommendable to appoint a VAT champion within a company as a go-to person for all who have questions related to VAT.
Because VAT returns must be filed electronically, bookkeeping must be automated. Existing software needs to be assessed on its ability to handle VAT and if necessary upgrades must be made.
Non-automated bookkeeping will need to be replaced with accounting software that can handle VAT appropriately. There are many on the market but it is not easy to select the best for any individual business. To do this right, system requirements must be formulated and a selection team set up. You cannot do this in just a few weeks. [This article brings to a conclusion the series on VAT.]
Dr Robert F van Brederode is of counsel to Horwath Mak Ghazali in Oman. He is a tax lawyer, practitioner and scholar with over 30 years of experience in global VAT. He served Crowe Horwath International as the global indirect tax leader, and was the national practice leader of the US member firm.

Dr Robert brederode
Robert is the author of dozens of academic journal articles and 8 books. He can be reached at Robert.brederode@crowehorwath.om.