Monday, 7th August 2017
A Gulf Cooperation Council (GCC) agreement has confirmed the introduction of VAT in 2018 in all GCC Member States – Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. What does this mean for businesses in the region?
The agreement broadly reflects OECD and EU VAT principles in terms of place of supply rules, reverse charging and treatment of input/output VAT. To a large extent, there will be universal GCC-wide regulation, but Member States will have considerable scope in terms of compliance regulation, zero-rating and exemptions.
The following principles are universal across all GCC jurisdictions:
The following are mandatorily zero-rated throughout the GCC:
In other areas, the application of exemptions or zero-rating is to be determined by individual Member States. The Framework Agreement also allows Member States considerable scope in terms of practical implementation and businesses’ compliance obligations.
While simultaneous implementation had been mooted, the levels of preparedness in individual Member States make this unlikely. The UAE is expected to introduce its VAT regime from 1 January 2018. A draft VAT law has been approved in Qatar. Saudi Arabia is expected to implement its VAT regulation in Q1 2018, and Bahrain by mid-2018. There are, as yet, no public announcements from Oman and Kuwait.
Once specific tax collection and enforcement agencies are in place, the first steps for every business will be to:
In the meantime, businesses should develop a full understanding of the nature and operation of VAT, its likely impacts throughout the business, and the changes necessary to contracts, invoicing, IT, systems and staffing.
Whereas profits taxes are typically applied only at a company’s year-end, VAT returns (and settlements) are normally required monthly or quarterly. Apart from the additional reporting and compliance burden, effective VAT management introduces other considerations: poor control over input and output VAT can have serious implications for cash flow, contracts and invoices need to reflect all VAT costs for clients, and IT and systems need to be fully adapted to accommodate these requirements.
Businesses should evaluate their existing systems and assess how far these can be adapted to meet the requirements of the new VAT regime.
Smaller enterprises may not have the financial or personnel resources to undertake the level of preparation required. If that’s the case for your business:
Russell Bedford member firms in Kuwait, Qatar, Saudi Arabia and the UAE can advise on the most immediate impacts of the new VAT regime, including contract reviews, invoicing and systems analysis, corporate restructuring, tax planning, and recruitment and staffing.
The views expressed in the articles in this website are those of the authors and do not necessarily reflect the opinions or policies of Russell Bedford International or its member firms. The information contained in this website is provided for general purposes only and does not constitute professional accounting, tax, business or legal advice. It may not be applicable to specific circumstances. Laws and regulations change rapidly, so information contained herein may not be complete or up-to-date. Please contact your professional adviser before taking any action based on this information.