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How to Minimise VAT Exposure Using CCS’s Candy and BuildSmart

Construction Software providers are (or at least should be) embedding updates and changes to keep pace with the changing legislation and conditions of the markets in which their customers operate. These enhancements are reliant on specialist knowledge of individuals and groups (a commodity which itself becomes more scarce as the complexity of change increases). Value-added tax (VAT), is a prime example of one such change that was introduced to the GCC market 1st January 2018, a form of indirect tax that raises multiple challenges to all industries, including Construction.

Your Construction Software should play a pivotal role in supporting business processes into which the new tax procedures need to have been incorporated. This article highlights issues that construction businesses will face in adapting VAT in their Construction Software. We should begin by considering the nature and level of complexity presented by VAT and Construction Software and the challenges these aspects present construction businesses.

COMPLEX VAT REQUIREMENTS

The complex nature of business operations and Construction Software packages together give rise to a need for changes, upgrades and enhancements:  changes in rules or in the market environment in which your customer operate must be catered for within your construction software platform. It is common these days to make an assumption during selection and implementation, that VAT, as a generic requirement, is automatically addressed by the software itself. In reality, that is seldom the case and the handling of VAT within Construction Software platforms can give rise to significant exposure to risk by a lack of attention to detail in that regard. 

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 intracommunity 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.

VAT in the GCC is throwing up many questions and challenges as the systems and processes adapt and adjust.  That being said, VAT across the globe has been a day to day reality for decades.

CCS’s Candy (Estimating and Project Control software) and BuildSmart (Cost and Enterprise Management software), create a one-of-a-kind, market-leading integrated project lifecycle control solution and were developed within this environment and are fully capable of integrating VAT as well as any other taxation changes that may crop up in the future.  CCS’s Candy and BuildSmart were designed and tested in the world markets where these requirements already exist, hence not a new challenge, rather an application of the many, many lessons learned over the years through practical experience.

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