Consider the following criteria as highlighted by a KPMG study: Materials and products shipped directly from a company to its client lead to one of the most complex VAT situations because there is only one supply while there are multiple transactions that attract a VAT liability. These scenarios typically occur at companies reselling units. Different elements within the transaction determine the correct VAT treatment. For example, the applied Incoterms(rules for Sea and Inland Waterway. The ICC has specific Incoterms rules for inland waterway and sea transport such as free on board and cost, insurance and freight.) will determine whether a transaction is considered as an intra-community transaction or a domestic sale.
- Having branches in more than one country requires a more complex structure and design within the Construction Software system and the model must apply fiscal rules and requirements to invoicing. Within VAT regulation, the actual flow of goods will be the determining factor for the application of VAT. Where companies operate different types of operational hubs(warehouses, storage or reseller units for example), the origin (or place from which the goods are sent) will determine the application of VAT.
- Determining VAT for service activities is vastly different to that for the supply of goods. Place-of-supply rules for services depend on the nature of the service delivery, which is generally not taken into account within VAT determination. In order to automate the VAT derivation for services, additional VAT derivation functionality within the Construction Software system is required.
- Products and raw materials can have a different VAT rating in different locations. This gives rise to the absolute requirement to maintain accurate ‘master data’ to ensure the correct rating is accounted for and applied.
If activities are limited to the domestic market, the treatment of VAT on transactions can be automated relatively easily. Large international companies on the other hand will be faced with the significant criteria discussed above. Ensuring your construction software has the capability to handle such complex international, and multi-functional complexities is of paramount importance. Mitigating the risk and possible financial penalties that are now in place for transgressing VAT legislation in the GCC is a factor all businesses of all sizes needs to address. Standard functionality within Construction Software systems does not guarantee the correct handling of more complex VAT requirements so you absolutely must raise these questions with your software provider.