The member states of the Gulf Cooperation Council (GCC) Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE) aim to have a local VAT-system in place in 2018. While Saudi Arabia and UAE apply their VAT legislation as per 1 January 2018, other Gulf states will introduce their VAT system later. The new VAT system will have implications for companies in and outside the Gulf states. Companies should prepare in time to avoid severe penalties, making internal processes and systems ready, and optimize their VAT position and cash flows.
VAT Framework Agreement
The VAT Framework Agreement requires the Gulf states to mandatory implement local legislation whilst allowing discretion on the VAT treatment of certain supplies. The six Gulf states reached agreement on certain common standards such as the scope of the tax, general principles and definitions, and the standard tax rate of 5% for goods and services not exempt or zero-rated.
A Brief General Idea
- VAT is charged and collected by taxable resident and non-resident businesses and remitted to the relevant tax authorities.
- A business must register if and before it supplies taxable goods and/or services in a Gulf state. To companies a threshold may apply. VAT registration may not be required for non-resident businesses supplying under the reverse charge mechanism. It may be possible to voluntarily register and to register as a VAT group.
- Input VAT is recoverable if it relates to taxable supplies made (either 5% or 0%).
- VAT returns must be filed by the taxable business each month. This period may be extended depending on local VAT legislation.
- Certain administrative requirements apply such as keeping VAT invoice and accounting records for at least 5 years (15 years for real estate) and VAT invoicing standards.
Going Forward
To avoid severe penalties or even business disruptions, it is important to prepare an impact analysis for these new VAT regulations. To provide you practical recommendations we need information such as:
- The type of goods and services you sell to or buy from the Gulf states, including the logistical flow of goods
- The involved (contractual) parties
- Your local presence in the Gulf states (branch, entity, possible location in free zone)
- The anticipated turnover/value of the transactions conducted with the Gulf states
In close cooperation with local partners, Fisconti can assist you with this impact analysis and further implementation. For more information please contact Guido van Asperen (+31 70 365 66 17 or guido.van.asperen@fisconti.nl).