GCC Unites for New Tax Law

Posted on Nov 07, 2017

GCC Unites for New Tax Law

The Gulf Cooperation Council has already given the green signal to the imposition of Value Added Tax in their respective nations. Now they reached another milestone by publishing the Unified Agreement for VAT in the official gazette of one of the member states, Saudi Arabia. The Agreement provides the blueprint or framework for the operation of VAT across the GCC which will eventually be implemented by each GCC member nation through legislation and other instruments. This Agreement thus gives a final call to all the companies operating in the Middle East to put in place or further their VAT implementation plans.

The UAE Ministry of Finance stated in February that VAT would be implemented in the UAE from January 1, 2018 thus putting UAE in the front-runner for the VAT implementation in the region. The Agreement imposed and finalized by the GCC Region regarding the VAT implementation includes the following key features:

  • VAT will apply to goods and services at the standard rate of 5% (Five Percent).
  • It is mandatory for businesses with an annual turnover of SAR 375,000 (Saudi Riyal) or its equivalent from any other GCC member state currency. Though businesses that generate 50% of this threshold annually can voluntarily register for VAT.
  • Persons, those will be under the taxable category 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.
  • Certain sectors and niche industries such as education, healthcare, real estate and local transport are left to the discretion of each member state, suggesting it depends on the respective nation whether they want to exempt these or not.
  • Food products are another items that 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 exempted and 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 a place of consumption and avoid double or no taxation.
  • VAT due on the import of goods shall be paid at the first point of entry in the GCC Region.

 

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