The common legal framework for the introduction of a VAT system in GCC countries is now set. Each Member State will integrate the regulations into their local law and implement VAT from 1 January 2018.
The Gulf Cooperation Council (GCC) – of which the UAE and Qatar are member states along with Saudi Arabia, Kuwait, Bahrain, and Oman – will start implementing the Value Added Tax (VAT) from 1 January 2018. Here are some key regulatory information and recommendation that global business can take into account when preparing their business to VAT rules.
What companies need to know?
VAT rate will be set at 5% for all GCC states, Saudi Arabia and the UAE have issued the legislation to enable the Tax Authorities to be formed.
Companies supplying taxable goods or services with an annual revenue of more than USD 100,000 will have to register; those with annual revenue of between USD 50,000 and USD 100,000 will have the option to register. Companies can register voluntarily if expenses exceed the threshold. This opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.
For UAE, the electronic registrations will be open for VAT from the third quarter of 2017 on a voluntary basis and a compulsory basis from the final quarter of 2017. Saudi Arabia is running the pre-registration process where the vast majority of large taxpayers are automatically registered.
Exemptions announced so far:
- Financial services carried out by licensed banks and financial institutions
- Importation of goods if the final destination country is exempt from VAT or subject to a zero-rate
Zero rated categories:
- Cross-border transportation of goods and passengers within the GCC and from/to the GCC
- Export of goods from the GCC
- Gold, silver and platinum for investment purposes
- First supply after the extraction of gold, silver or platinum
- Goods under customs suspension
- Re-export of temporarily imported goods for the for the purpose of repair, maintenance or processing
- Supply of services to a non-GCC resident where the benefit of the service is outside the GCC
With zero-rated, businesses can reclaim any VAT they have paid on costs. A Taxable Person who makes only zero-rated supplies may request to be excluded from the Mandatory Registration requirement for VAT purposes in accordance with the conditions and rules determined by each Member State.
What companies need to do?
Establish if your business provides taxable services or goods and to which Member State taxation needs to be paid.
- Place where transport begins
- Place where goods are at the disposal of the customer (in case of supply of goods without transportation)
- In Business to Business (B2B) transactions in GCC States: where the transfer terminates
- Where the supply is direct to customers with transportation: where transport begins, unless supplier exceeds monetary threshold set.
Special rules apply in many cases but most have not yet been confirmed. In short, it will depend on the taxable status of the customers, i.e., if customer is taxable, where they are located will be important; if the customer is a non-taxable person then it will be where supplier is located.
Maintain all financial records, including accounts, VAT invoices, books and records, in the resident Member State. The records must be kept for a minimum period of 5 years, from the end of the year to which they relate, and made available for review at any time.
- Taxpayers must file VAT returns with the tax authorities of the applicable Member State on a regular basis
- The VAT period should be of minimum one month.
- For UAE, VAT payment and returns will be electronic. Also the return will have to be filed within 28 days from the end of the VAT period in accordance with the legislation. Additionally, UAE taxpayers will be required to report sales and purchases on an Emirate level basis on their VAT returns. This will represent an additional compliance burden to businesses operating across the Emirates.
- Reverse charges will be applied where the supplies of goods and services from a VAT registered person in one Member State to a VAT registered person in another Member State or the import of goods and services from outside GCC
- The responsibility for reporting of a VAT transaction is shifted from the seller to the buyer. The buyer reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for the same quarter.
The taxable person will need to issue a VAT invoice when they supply of goods or services, or where full or partial receipt prior to the supply date.
- Each Member State will determine the contents of the VAT invoice and the period within which it must be issued.
- VAT invoices can be issued in any currency, provided that the value of the VAT is written in the currency of the Member State where the place of supply is located, based on the official currency exchange rate in force in that State.
- A Taxable Person who adjusts the Supply Consideration must include this adjustment in a document (credit or debit note “Tax Invoice”) correcting the original Tax Invoice. This document shall be treated in the same way as the original Tax Invoice according to the procedures determined by each Member State.
It is expected various penalties will apply in case of non-compliance, such as:
- a person failing to register when required to do so
- a person failing to submit a VAT return or make a payment within the required period
- a person failing to keep the records required under the issued tax legislation
- tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.
Stay tuned for more information on whether VAT will be applied on Free Zones or not, registration dates, forms of registration, sectors in which counties can choose to exempt and sectors in which counties can choose to apply a zero-rate. We will share this information as soon as is confirmed.