GCC VAT regimes – State of play 2020 – In June 2016 the six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (KSA) and the United Arab Emirates (UAE)) signed the GCC VAT Framework Agreement. The Framework Agreement provided a common set of VAT rules on the basis of which the separate GCC countries agreed to introduce their own VAT regimes domestically. Under the Framework Agreement, the GCC countries should introduce VAT at a standard rate of 5%. VAT should apply to most supplies of goods and services that are (considered to be) supplied within the respective jurisdiction, including the import of goods and services.
From 1 January 2018 both the KSA and the UAE have gone ahead with introducing their domestic VAT regimes. Bahrain introduced VAT from 1 January 2019 with a transitional period for businesses using three mandatory VAT registration thresholds. The final application of the mandatory registration threshold of USD100,000 (turnover) for smaller businesses entered into effect from 1 January 2020.
The other three GCC countries have not yet introduced VAT. According to a recent Ministry of Commerce and Industry official’s statement, VAT will be introduced in Oman in early 2021. The Kuwaiti Parliament recently also confirmed that the VAT introduction will not take place in Kuwait until 2021. In the meantime, no official comments have been made available in relation to the timing of the introduction of VAT in Qatar.
DLA Piper comment: With VAT applicable in the KSA and the UAE for over two years now, our clients have recently witnessed an increase in VAT audits performed by the local tax authorities. At the same time, this is leading to more VAT disputes as VAT assessments and penalties are being challenged.
Although it is unknown exactly when the entire GCC will have an effective VAT regime in place, the future application of VAT in the three remaining GCC countries should be taken into consideration when reviewing and (re)negotiating contracts concerning supplies (of goods or services) within the region. Contracts should contain appropriate tax clauses and they should reflect the (economic) reality.