In another milestone towards the implementation of VAT across the Gulf Cooperation Council, the Unified Agreement for VAT was published in the official gazette of one of the member states, Saudi Arabia. The Unified Agreement provides the framework for the operation of VAT across the GCC. Each GCC member state will implement the framework through legislation and other instruments. This milestone is another reason for companies operating in the Middle East to put in place or further their VAT implementation plans.
VAT for the GCC Region includes the following key features:
- VAT will apply to goods and services at the standard rate of five percent (5%).
- VAT registration is mandatory for businesses with an annual turnover of more than USD 100,000.00.
- Most VAT compliance requirements and procedures are left to the discretion of each member state under its local legislation.
- Taxable persons will be allowed to deduct input VAT that is incurred for making taxable supplies of goods and services.
- Input tax credit at the end of each tax period may be allowed as a refund or carried forward, depending on each member state’s modalities.
- The VAT treatment of some sectors, like education, healthcare, real estate and local transport is left to the discretion of each member state (i.e. whether these sectors are subject to tax at standard rate, zero rate or exempt).
- The VAT treatment of financial services: The standard rule stipulated in the Treaty is to exempt these services from VAT with a right to reclaim the input tax credit according to specific rates determined by each member state. However, each member state may opt for a different VAT treatment for financial services.
- Food products shall be subject to the standard rate of VAT, however each member state will have the right to apply zero rate on food as per the unified list of commodities (e.g. basic foods: bread, milk etc.).
- Medical equipment and medicines will be subject to zero rate.
- Oil and gas including oil derivatives sector may be subject to VAT at a standard rate or zero rate, at the discretion of each member state and in accordance with the modalities and conditions they each set out.
- The transport of goods and passengers (intra-GCC and international) and associated ancillary services will be subject to VAT at a zero rate.
- Export of goods to outside the territory (outside the GCC Region) will be zero rated.
- The supply of goods placed under suspension arrangements referred to in the GCC Common Customs Law (e.g. temporary import, re-export etc…) shall be subject to a zero rate.
- A reverse charge mechanism will apply to the acquisition of services from abroad. The taxable customer in the destination state shall be the person liable for the tax due.
- Specific place of supply rules apply for intra-GCC transactions to ensure VAT is levied at place of consumption and avoid double or no taxation.
- VAT due on import of goods shall be paid at the first point of entry in the GCC Region.
VAT is levied at each stage in the supply chain and is collected by businesses on behalf of the Government. VAT is ultimately incurred and paid by the end consumer. Each Member State will integrate the regulations into their local law and implement VAT from 1 January 2018.
How can inoday help?
inoday can provide a complete range of services to address all elements of VAT and ongoing compliance like Technology and systems consulting, Implementation and monitoring, Planning and advice, Finance and tax function consulting.
- VAT Impact Assessment
- Planning and Implementation
- Transition and Output Testing
- Post Implementation Support
Our Indirect Tax Team is available to discuss and bring clarity to the specific challenges that your businesses will face in getting ready for VAT. You can connect our indirect tax executives to learn more about the journey that lies ahead.