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Syed As If Zaman GCC Vat Treaty
Syed As If Zaman GCC Vat Treaty
Syed As If Zaman GCC Vat Treaty
On 17 May, 2017
5th Saudi- Pak Accounting Symposium
Riyadh, KSA
1
ANALYSIS OF THE GCC VAT FRAMEWORK AGREEMENT
The Gulf region (including UAE & KSA), has long Infrastructure development, access to high-
been considered an attractive and low-tax potential growth markets in Africa and Asia, free-
environment. However, to keep up with the changing trade zones, competitive labor costs, few trade
economic landscape and as part of wider development barriers and economic and political stability are all
reforms, the Gulf Cooperation Council (GCC) member factors which add to the regions appeal. In
states signed a framework agreement to introduce addition, VAT will have a neutral impact on
Value-Added Tax (VAT) on the supply of goods and registered businesses when managed effciently.
services at a standard rate of 5%, in 2018. The Unified
agreement for VAT was published by Kingdom of Saudi
Arabia on 21 April 2017.
Implementing VAT will have implications for businesses In this presentation I will try to examines the
and new taxpayers, both in KSA and abroad, directly and GCC VAT Framework Agreement and reasons
/or indirectly. for implementing VAT in GCC.
However, a broad-based VAT at low rate is
unlikely to deter investment in the surrounding
region, whose appeal stretches much further than
its low-tax status.
The Unified Agreement for VAT of the GSCC, sets out the framework under
which VAT can be implemented in each of the GCC member states. The
framework includes agreement on certain matters and in addition, requires
member states to mandatory implement local legislation whilst allowing
discretion on how to handle other related issues.
Once the agreement is ratified, each member state must integrate the framework
into local law and implement VAT. Ministry of Finance in KSA & UAE has
announced plans to implement VAT by 1st January 2018, while some
member states have indicated an intention to implement VAT some where GCC countries
between 2018 to 2019. The framework allows for a basic rate of VAT on United Arab Emirates
supplies of goods and services of 5%, as well as allowing such supplies to be Kingdom of Bahrain
zero-rated or VAT exempt depending ultimately on the domestic legislation of Kingdom of Saudi Arabia
each country.
Sultanate of Oman
State of Qatar
State of Kuwait
VAT legislation
Each Member State will issue its own VAT legislation in accordance with the common principles outlined in the
GCC Treaty. It is expected that some countries will issue VAT legislation is expect to be announced shortly in
KSA & UAE.
VAT regulations
These regulations will provide guidance to tax payers in each GCC Member State on the interpretation of the
VAT legislation in that Member State. We anticipate that the regulations will be issued shortly after the VAT
legislation is issued.
Go live
The introduction of VAT across the GCC is expected to take effect from 1 January 2018 in KSA & UAE.
4
Ahmad Alagbari Chartered Accountants
Reasons for Introducing VAT
Below are the break-even oil-price-per-barrel estimates for GCC countries this year, as calculated respectively by the IMF
Qatar: $55
UAE: $60
Oman: $ 77.5
Bahrain: $ 93.8
The question arises that whether the GCC VAT system is based on the EU model or the more modern
systems found in the newer VAT implementing countries (e.g. Singapore or New Zealand).
If we start by looking at comparators and the only comparator with a multi-country VAT system is the
EU. So, for that reason, it has similarities with the EU VAT system. Similarities to the EU are
principally around the intra-GCC movement of goods (and some services) between businesses (B2B)
as well as to private consumers (distance selling provisions apply so that someone supplying goods
over the VAT registration threshold to another country must register there).
If you are familiar with the EU system then the ability to not charge VAT on many B2B supplies
where your customer is VAT registered in another GCC country will be very familiar.
Apart from this similarity GCC VAT system ceases to resemble the EU system (except mechanically
in the way all VAT systems are similar) and begins to look more like more modern VAT systems. The
primarily manifests is the limited number of exemptions and zero-rates and the very low standard rate
5%.
CHAPTERS TITLES
Chapter one Definitions and General Provisions
Chapter two Supplies within scope of tax
Chapter three Place of supply
Chapter four Tax Due date
Chapter five Tax Calculation
Chapter six Exceptions
Chapter seven Exceptions on Importations
Chapter eight Persons who are obliged to pay tax
Chapter nine Tax deduction
Chapter ten Obligations
Chapter eleven Special treatments of Tax refunds
Chapter twelve Exchange of information between member state
Chapter thirteen Transitional provisions
Chapter fourteen Appeals
Chapter fifteen Closing provisions
VAT will ultimately impact every business that supplies goods or services
in the GCC countries. In particular, businesses that make taxable supplies
over the mandatory threshold, must register with the relevant tax authority.
There is scope for voluntary registrations and VAT registration
requirements will apply to non-resident entities. Additionally, there is
scope to register multiple entities as a single VAT group, subject to
conditions to be set out in the domestic legislation of each GCC country.
Policy choices available to the GCC Countries(1/2)
The following slides summarizes the policy areas which the GCC Countries have discretion to decide upon the
approach to be taken;
Application of exemption, or zero rating or standard rating of certain supplies [Article 29 (1),GCC VAT
Agreement] relating to:
Health
Education
Real Estate
Local Transport
Exceptions to payment of VAT (or allowing refund) in special cases[Article 30,GCC VAT Agreement] in relation to:
Zero rated supplies are not subject to VAT right to an input tax deduction on the corresponding expenses.
Should be applied strictly as they are an exception to the normal rule that VAT should be charged.
Exempt supplies are not subject to VAT-no right to an input tax deduction on the corresponding expenses.
Exemptions should be applied strictly as they are an exception to the normal rule that VAT should be charged.
Bare land
Important concepts
Input tax [Article 1(22); GCC Meaning of taxable supply [Article Reverse charge mechanism
VAT Agreement]: 1(28); GCC VAT Agreement]: [Article 1(18); GCC VAT
Agreement]:
Tax payable by a taxable person on Supplies on which tax is charged
supply of goods and services according to the VAT Agreement, A mechanism under which the
received or on import of goods and whether at standard rate of 5% or at recipient of goods or services is
services for the purpose of zero rate. A deduction of input tax required to pay VAT instead of
carrying out economic activities. can be claimed against the VAT the supplier, when the supplier is
payable on taxable supplies. not a taxable person in the
member state where the supply
has been made.
Tax Group [Article 4; GCC VAT Agreement]:
Exempted Supplies [Article 1(27); GCC VAT
Member states may allow two or more persons Agreement]:
that are residents of same state to register for VAT
as a TAX Group; such group shall be treated as a Supplies on which no tax is payable and for which
single taxable person for payment and compliance deduction for input tax cannot be claimed.
of VAT.
Definition of Supply
The supply of goods or services......
It is important to establish whether a taxpayer is supplying goods or services since there are different rules applying to
each for the purposes of determining where and when the supply takes place.
Goods Services
Each Member State may treat the Tax Group as a single Taxable Person
Two or more persons carrying on a business are able to apply for a single Group VAT registration where
Each person has a place of establishment or affixed establishment in the GCC member country e.g. KSA
The persons are related parties and
Either one person controls the others, or two or more persons form a partnership and control the others
Effect: Entities within the VAT Group are treated as one entity for VAT purposes
Results:
supplies made between members of a VAT group are disregarded from VAT(i.e. no VAT is due on the
supplies)
Supplies made by the VAT group to an entity outside the VAT group are subject to normal VAT rules
No VAT
implications
Company A Company B
Sales + VAT
Company D
No VAT implications
Company C
Place of Supply
Place of supply rules will determine whether a supply is made in the KSA or outside
the KSA for VAT purposes:
If the supply is treated as made outside the KSA: no VAT will be charged
Goods Services
Basic rule: the place of supply is the location of Basic rules: the place of supply is where the supplier
goods when the supply takes place has the place of residence
KSA
ServiceCo Company X
Service flow
Reverse charge rules typically apply to services received from suppliers established outside the country
The recipient accounts for the VAT due on the supply on his VAT return (instead of the supplier)
The VAT accounted for by the recipient is deductible as input VAT on the same VAT return
13
Ahmad Alagbari Chartered Accountants
Place of Supply
Reverse charge mechanism - example
Legal Advice KSA UK Legal Advice KSA
KSA
SAR 10,000 + 5% VAT SAR 10,000 + 5% VAT
International Border
The company
The law firm declares SAR 500 as The UK firm is The company declares
declares SAR 500 as input tax paid to not registered SAR 500 as input tax
tax collected the law firm which in the KSA and and SAR 500 as output
is recoverable files no return tax. This is reverse
charging
5. Records of any goods given for free or allocated for private use
intra-GCC Total value of sales and all other outputs excluding any VAT 6 X
transactions 7 x
Total value of purchases and all other inputs excluding any VAT
Calculate the Net
VAT amount and Total value of supplies of goods and related costs, excluding any VAT, to other
GCC Member States
8 x
Presented by
Syed Asif Zaman
ACA, AAIA, FPFA, CISA, MBA, B.Sc