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March 2019

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It has been confirmed that the Polish Authorities are planning on enforcing split payments for industries vulnerable to VAT fraud, in particular scrap metal, electronics, precious metals, steel and car parts for B2B transactions will come into force some time later this year.

The impact on foreign businesses who currently settle by bank transfers which are subject to VAT in Poland will also be required to open a bank account in Poland. However it is not clear how this will be enforced.

On 1 January 2019 Bahrain became the third of the six GCC countries to introduce VAT, following Saudi Arabia and the United Arab Emirates one year earlier.  As per the terms of the Unified VAT Agreement signed by all the GCC States in 2016 the rate of VAT is 5%.

In a departure from the way in which KSA and UAE introduced VAT however, Bahrain limited the January 2019 implementation of 5% VAT to large tax payers, meaning that ahead of 1 January 2019 only businesses with an annual turnover of approximately 5 million Bahraini Dinars (BD) were required to register, by 20 Dec 2018.

Rolling forwards, from 1 July 2019 businesses with an annual turnover between BD 500k and BD 5million will be required to register and from 1 January 2020 businesses with an annual turnover between BD 37.5k and BD 500k will be required to register.

As with KSA and UAE, non-resident businesses have no threshold and must register immediately and voluntary registrations are permitted.

Zero-rating is available for, amongst others, the construction of new buildings, education and healthcare services, transport services, as well as oil and gas and derivatives, pearls and precious stones and, in a further departure from KSA and UAE, for basic food items.   The sale and lease of real estate as well as certain financial services and life insurance/reinsurance are exempt from VAT.

Businesses need to be ready for the Making Tax Digital initiative and many need to handle their records digitally from the 1st April. Over 2000 businesses are signing up for MTD each day, but at the beginning of March almost 1.2 million businesses only had one month to go to get signed up and using the software.

Most UK VAT registered businesses with more than £85k p.a. turnover must subscribe to the new “Making Tax Digital” (“MTD”) regime for VAT return submissions falling due from 1 April 2019. This means they must have a computer system allowing them to:

·        Keep records in a digital form;

·        Create a VAT return from the digital records, and

·        Submit this information digitally (no more manually typed submissions will be possible

The new service gives businesses a more integrated approach to tax. For businesses over the VAT threshold, they will need to be to digitally submit their records and submit VAT returns using MTD-compatible software.  The scheme is designed to give businesses more control over their finances, so that they can spend more time on their growth and job creation. It also reduces the time they spend on admin and makes it easier to get tax right. It’s part of the government’s #Smartergov campaign, which was launched to drive innovation through the public sector.

Companies Delaying Signing Up

There have been some concerns that companies were putting it off due to the high cost of software, a belief that the deadline would be moved again or a difficulty in understanding the new system. Theresa Middleton, Director of the Making Tax Digital for Business Programme, commented that there are many options for companies.

“There are over 160 software products for businesses to choose from with a range of prices, including some that are free, offering different levels of functionality to suit every business. It’s time to get on board and join the thousands of businesses already experiencing the benefits of MTD.”

Most accountants will have been aware of Making Tax digital for a while and can advise businesses of how and when they need to make changes. Any software that companies already use will need to be MTD-compatible and authorised when they sign up.  If you don’t currently have software or an accountant to advise, businesses are able to access information and guides online.

Snagging Period and Deferment

HMRC has also made companies aware that they are aware of the snagging period usually needed for implementing new systems. For this reason, during the first year it will not be too harsh when it comes to digital record keeping and forcing penalties if companies are doing their best to comply with the law.  This doesn’t mean, however, that there will be no penalties at all.

There is also deferment until 1 October for some VAT taxpayers, such as trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

Any business that does not have an accounting system configured to make the automated submissions to HMRC, or that manually manipulates data outside its system (for instance in Excel) before submission will need to obtain “bridging software” in order to make submissions in form required by HMRC.

Provisions to force foreign suppliers of B2C digital downloads to register for and pay local  VAT/GST continue to spread to new countries across the world. The latest jurisdiction to introduce this is the Canadian province of Quebec. Foreign suppliers of digital services above a value of CAD 30,000 p.a. will become registrable for Quebec Sales Tax from 1 September 2019. Canadian businesses from  other provinces  have been registrable since 1 January. The rate is 9.975%.

Germany has been referred to the Court of Justice of the EU for rejecting certain applications for VAT refunds coming from businesses in other member states.

The incidents have occurred when they believed the information provided on the VAT refund is insufficient. Instead of asking for additional information on the nature of the goods and services, it has come to a decision anyway.

VAT refunds were denied even though they fulfil the substantive requirements. It violates the right to a VAT refund established under the EU rules* and the Refund directive**.

The decision was made by the European Commission in January following a review as Germany has failed to bring its legislation in line with the EU law.

*VAT Directive, Council Directive 2006/112/EC

**Refund Directive, Council Directive 2008/9/EC).

The Chinese authorities have confirmed they will reduce the rate of VAT on the manufacturing industry from the current 16% down to 13% as of 1 April 2019.

For the transportation and construction industries, VAT will be reduced to 9% from 10% to help reduce tax burdens on the manufacturing sector and small businesses. The 6% value added tax for other industries will remain unchanged.