As a part of their diversification strategy and sustainable growth, Gulf Cooperation Council (GCC) countries (UAE, Oman, Saudi Arabia, Kuwait, Qatar and Bahrain) are looking to implement Value Added Tax (VAT) in the near future. This has been agreed to in the ‘GCC VAT Agreement’, the Arabic version of which was published in the official gazette of Saudi Arabia, to levy common indirect taxes in GCC countries. Moreover, Saudi Arabia and UAE has also published a regional Draft Law Consultation Web-Form along with detailed Executive Regulations. This embodies the inception of a landmark financial reform in the GCC region.
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Introduction
How does VAT work?
VAT is an indirect tax and is occasionally referred to as general consumption tax in other countries. VAT is imposed on most supplies of goods and services that are bought and sold. It is charged at each step of the ‘supply chain’. The final consumers generally bear the.
VAT in GCC
Some of the salient features of VAT in the GCC region would include: Rate A single standard VAT rate of 5%, 15% or any other in future Levy It will apply to the import and taxable supply of goods and services at each stage of production and distribution, including deemed supplies by taxable supplies by individuals, partnerships or companies within the GCC countries. Certain goods and services such as healthcare, education, oil & gas, real estate, transportation and goods and services relating to means of transport etc. will either be zero rated or exempted. Registration Mandatory registration for turnover above AED 375,000 and optional registration for turnover above AED 187,500. Compliance Businesses will have to maintain books of accounts and file periodical VAT returns.
Value Consideration with specified inclusions and exclusions and a different mechanism for deemed supply. Input tax deduction Companies will be able to set off their tax payment against input credits for taxable supplies. Penalty There will be penal consequences for non-compliance. Transitional provisions Every GCC country is to provide domestic laws for transitional provisions as the implementation dates may differ from country to country. The challenge for the business community in the Gulf will be to understand the dynamics of this new regime and plan ahead to adapt to this transitional business change.
Staying one step ahead
Organisations must start assessing the business impact of VAT across all functions. Your business must: Assess the impact of the upcoming VAT law from a tax, process and technology perspective. Realign its strategy. Set-up a compliance framework and assess the capital and resources required. Commercial contracts should be reviewed from a tax and commercial perspective. It is critical to act now to assess business readiness for VAT, reassess business profitability, mitigate risks and avoid non-compliance penalties.
How we can help
With the needs of our global and domestic clients in mind, we pursue a quality-centric approach for providing a one-stop indirect tax solution. Our multidisciplinary experience in global VAT compliance for MNCs through our Knowledge Process Outsourcing (KPO) services has enabled us to build cost-effective solutions for global indirect tax structures. Leveraging our global and domestic indirect tax experience, we have formulated VAT Business Advisory and Compliance services to assist our clients plan ahead and effectively mitigate transitional risk. At SKP, we plan to assist your company in bridging the gap over to VAT by offering an end-to-end VAT solution structured into four modules. Keeping in mind the unique and diverse requirements of each client, we give you the freedom to select and customise the services most suitable for your business from our list of services below.
