A Quarterly Newsletter from UAE and Oman

VOL 21 ISSUE 3 July 2019

ADNOC’s In-Country Value (ICV) Program

Background

In November 2017, Abu Dhabi National Oil Company (ADNOC) announced its In-Country Value (ICV) program for ADNOC Group Companies. The objectives of this program are:

  • Emiratisation: creating additional employment opportunities for UAE nationals in the private sector;
  • GDP diversification: supporting UAE GDP diversification through sourcing more Goods and Services within the UAE;and
  • Strategic considerations: localizing strategically critical links of the value chain for selected categories.

Suppliers are required to declare their ICV achievements of the previous financial year covering the following areas:

  • Goods manufactured (for suppliers engaged in manufacturing);
  • Third party spend (for service providers);
  • Investment in the UAE;
  • Emiratisation;
  • Expatriate contribution;
  • Bonus for (i) Exports & (ii) Emirati head count;

Supplier spend that remains within the UAE, or contributes to the UAE, is considered for the ICV calculation.

Eligibility


Certification can be undertaken for an entity registered in the UAE/outside the UAE and is linked to its commercial licence. A combined ICV can be obtained if the entity has branches in the same Emirate, and has the same name and ownership, else separate certification is required for each branch in another Emirate.

Audited financial statements not older than two years can be used as a basis. The auditor should be a firm registered with the Ministry of Economy, UAE.

The certificate is valid for 18 months from the date of issue.

Further, if the ICV was based on the audited financial statements for 2xx0, this will have to be revised within 2 months of the audit report on the audited financial statements of 2xx1.

ICV Formula

ivc-formula-goods-and-service
ivc-formula-company

Attributes considered

Manufacturing entities

  • Suppliers must list all goods manufactured into broad categories. If there are multiple goods in the same or similar categories, these can be combined in a single line item in the template.
  • Total cost should be split between costs incurred in the UAE and costs incurred outside the UAE.
  • The costs should be further split into third-party and internal costs.
  • Third-party costs incurred in the UAE should then be split as below:
    • Goods manufacturer – entity holding industrial licence. Costs for procuring materials from this entity will be considered 100%.
    • Service provider – entity holding licence other than industrial licence. Refer Third-party spend attributes.
  • Third-party costs incurred outside the UAE will be considered to the extent of its ICV score and accordingly, such supplier’s ICV certificate must be obtained.

Third-party spend

  • Suppliers must list all goods/services procured from third-parties in the Excel work sheet available on ADNOC website.
  • The total of the third-party cost above should agree with the audited financial statements.
  • The cost is considered to the extent of the service provider’s ICV score and, accordingly, ICV certificate of each of the third-party service providers must be obtained.
  • Sponsorship fees and penalties levied by Government are not considered for ICV while depreciation and amortisation are considered at 100%.
  • All operating costs such as utility costs, fuel, rental of property/ equipment, communication and Government fees can be considered in the third-party spend. Vendors from whom such services are procured will have their ICV’s as under:
Services ICV%
Water / Electricity 80%
Fuel ICV of the provider
Rent paid for property / land 80%
Telecom providers ICV of the provider
UAE Government charges – through agents/services providers (where government fee invoices are not in the name of the company) ICV of the agent/service provider
ADNOC group companies except ADNOC Distribution, ADNOC Drilling, ADNOC Logistics & Services and Borouge 80%
ADNOC Distribution, ADNOC Drilling, ADNOC Logistics & Services and Borouge (JV between ADNOC and Borealis, Austria) ICV of the provider

Investment

  • Following fixed assets are considered for calculating ICV:
    • Property, plant and equipment (including any ERP acquisition costs);
    • For IT companies, software development costs can also be included;
    • Capital work-in-progress; and
    • Investment property.
  • All other intangibles must be excluded from investments.
  • Cost of investments outside the UAE should be reflected in the Supplier Submission Template but are not considered for the calculation.
  • Where the suppliers have revalued their property, plant and equipment, their value shall be reduced to the extent of the balance in the revaluation reserve.

Emiratisation

  • 100% score is given for salary and benefits paid to Emirati staff on the entity’s visa who hold pension accounts with the Ministry of Human Resources & Emiratisation.
  • Training expenditure (includes spend on external training provided to Emirati staff). Only expenditure included in the audited financial statements can be considered. Cost incurred on internal training courses cannot be included.
  • Any sponsorship or management fees paid to Emiratis outside of WPS cannot be included.
  • Additionally, bonus score is available based on the Emirati head count.
  • Cost of training Emiratis (non-employees) shall be counted if donations are made through Sondoq Al
    Watan
    (a social organisation for Emiratis) or following government institutions presently:

    • Emirates University
    • Higher Colleges of Technology
    • Zayed University
    • Khalifa University
    • Petroleum Institute
    • New York University, Abu Dhabi

Expat contribution

  • 60% score is granted for salaries and benefits paid to expatriate staff on the entity’s visa. This must be
    reconciled with the audited financial statements.
  • Training Expenditure (includes spend on external training provided). Only expenditure included in the audited financial statements can be considered for ICV. Cost incurred on internal training courses cannot be included.
  • Additionally, bonus score is available based on the expatriate head count.

Revenue

  • Suppliers must indicate the Revenue, in USD, from “Customers in the UAE” and “Customers outside the
    UAE”.
  • Revenue from Free Zone companies will be considered as revenue from “Customers in UAE”.
  • With respect to revenue from “Customers outside the UAE”, following breakdown must be provided:
    • Re-exports – revenue earned from re-exports i.e., where goods are imported and then exported without any “value addition” in the UAE.
    • Exports excluding re-exports – Revenue from sales to customers outside the UAE after value addition within UAE

Bonus
Applicable to all suppliers – maximum bonus up to 5%

(a) Exports
Entities registered in the UAE are eligible for this bonus:
revenue-formula-export

Following shall not be considered for export bonus:

  • Revenue earned through exports without value addition in the UAE
  • Trading and commission earnings by distributors/agents.

(b) Emirati head count
Number of Emirati staff on the entity’s visa, included in Wage Protection System are considered for bonus as under:
total-emirates
The total of (a) Export Bonus and (b) Emirati Headcount bonus shall not exceed 5%

How can PKF help?

  • PKF signed a memorandum of understanding with ADNOC in April 2019, as regards the ICV Program. PKF is honoured to be onboarded by ADNOC as an ICV certifying body and looks forward to serving the business community diligently, in accordance with the high standards established by ADNOC.
  • Our ICV team, led by a partner/director, will guide clients through the certification process. PKF will also inform clients about significant matters noted during the certification process, to bring clarity to the process and help them streamline their accounting records to ensure efficient and accurate ICV certification.

(This article is compiled by Jyotin Dholakia, Associate Partner, Abu Dhabi)