Business Transformation

VAT And Construction, How To Manage Your Proposals and Invoices?

In a tough competitive low pricing market like UAE and KSA, introducing VAT put another challenge to many companies on how to price VAT in their submitted bids/tenders/quotations/invoices?

These dilemma in what they include in their bid (or not) pushed some of them in this month to just add 5% on top of their prices as a safe step for them. For example one million contract, it adds 50,000 which might be the difference to lose a bid/tender/quotation in tough competitive low pricing market with tight profit margin like Saudi Arabia and UAE.

The other issue is including VAT on 2018 provided services for contracts signed before VAT law date (1st Jan 2018) which doesn’t include tax. It will be difficult issue to manage with public and private sector from all parties (client, consultant, contractors., subcontractor and suppliers). Unfortunately, this VAT application came with fuel prices hikes which added more complications to the issue.

Most of companies did VAT training and asked the ministry of finance about many issues however, the persistent challenges are:

  • The proper documentation.
  • The proper invoicing modelling which needs to be linked to other departments to have VAT recorded and balanced easily.
  • The staff training who are responsible for preparing bids/ tenders/quotations/invoices to avoid risks and delays on submittals or collections.
  • The grey areas what to include and what not to include which needs confirmation from experts.

These financial system setup, staff training and fast credible decision on what’s included and what’s excluded with the full understanding of proper links and documentation will main wining projects with limited risks and faster collection of invoices.

This documentation is important to be able to avoid double charging and to be able to recover the paid VAT too. The difference between the calculated received VAT from the paid VAT will be the amount to transfer to the government. The main challenge for such companies is maintaining the record right to be able to justify their VAT payments and to justify their recovered VAT requests.

Construction industry will apply 5% VAT in all of their sold services. This will start with any proposal to include 5% VAT in their proposed or quoted pricing. Here it comes the first change in the forms of the proposals pricing. Notice that it is better to deal with third parties who are registered for VAT.

Let’s ask these question for each prepared proposals/quotation/invoice:

  • Did we provide full training to the staff?
  • Did the staff really understand it all and can apply it?
  • Is the VAT applying for the full submitted price or part of it?
  • Do I price the VAT for the full amount or item by item?
  • Is my subconsultants/subcontractors and suppliers are VAT registered or not? If registered is their Invoice is right with the required information or not?
  • How much VAT I can recover from my submitted proposals/quotations? Where to record it and when I will recover it?
  • How to deal with sister companies services in a group?
  • How to deal with owned buildings, cars, equipments …etc?
  • How to deal with loans and funds?
  • What is the company projected VAT for next year?
  • What’s about existing contracts and services?
  • What’s about paid staff entitlements (house rent, health insurance, cars, …etc?

And many other important questions.

Let’s highlight the following for UAE’s VAT law:

In UAE, the following main categories of supplies will be charged at 0% in respect of the following:

  • Exports of goods and services to outside the GCC;
  • International transportation, and related supplies;
  • Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
  • Supply of certain education services, and supply of relevant goods and services;
  • Supply of certain Healthcare services, and supply of relevant goods and services.

Beside the above, the following categories of supplies will be exempt from VAT:

  • The supply of some financial services (clarified in VAT legislation);
  • Residential properties;
  • Bare land; and
  • Local passenger transport

Notice that, some goods that are imported may be exempt from customs duties but subject to VAT.

Finally, new tax law requirements mean new accepted auditable system. Otherwise, you will lose a lot of your opportunities and profits without knowing it. Some might just go for an accounting on shelve software however, there are many issues to be confirmed. You need to redesign your system and your excel sheets by yourself as a start before you choose to adopt certain software until everything settle down.

Best wishes,

Ziad Albasir

21th Jan 2018

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