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GCC Region – Update VAT introduction

By June 16, 2017July 10th, 2021No Comments

The GCC region (Oman, Bahrain, United Arab Emirates, Kuwait, Qatar and Saudi Arabia) have agreed earlier this year to jointly implement a VAT system. The system is based on the destination principle and…

The GCC region (Oman, Bahrain, United Arab Emirates, Kuwait, Qatar and Saudi Arabia) have agreed earlier this year to jointly implement a VAT system. The system is based on the destination principle and therefore trust between the member states to collect (on behalf of each other) and forward the VAT collected to the member state of destination. It was agreed that VAT is introduced as from January 1, 2018. Copies of the GCC VAT Framework agreement signed by all member states can be downloaded from the IVA webpage.

Link to the EY and Deloitte versions of the translations: document 1 and document 2

Note these are unofficial translations and they also differ in various parts.

From a business and legal certainty point of view an official translation into English by the GCC Council is therefore welcome.

The GCC VAT Framework Agreement forces the member states to publish their local VAT legislation. Only the Kingdom of Saudi Arabia has published the GCC VAT Framework Agreement. And until today only the Kingdom of Saudi Arabia has published draft VAT legislation to be applicable in the Kingdom (see below). All other countries announced they have drafted legislation and approved legislation in their parliaments but the content is not available for the public. Several countries have hinted that they are ready to introduce VAT as per January 1, 2018.

There are only 6 months left for businesses to prepare their systems to be compliant by January 1 (or the moment in 2018 each GCC country requires companies to submit returns). Without any (final) legislation or guidelines available it is clear this is going to be a major challenge for businesses.

Early June the region experienced new political challenges and tensions as the region (not only the GCC countries) decided to take action against Qatar. All Qatar’s borders are closed and it is clear without any trust, cooperation in the GCC VAT Framework Agreement is impossible.

The new situation where all borders with Qatar are closed has both an impact on the GCC Customs Union and the introduction of VAT. If this situation with Qatar continues it is questionable what this means for the GCC VAT Framework Agreement. Can Qatar stay within the GCC (Customs Union) at all? Could this mean that the Framework Agreement stops before it even begins or at least has to be adjusted and limited to 5 countries if Qatar cannot join the new VAT region?

I am sure this will impact the GCC VAT implementation. Already there were major concerns about the deadline of implementation starting January 1. Surveys show less than 50% of businesses are ready – but can they be ready at all if the legislation is not even published. As there would be a VAT region for 6 countries working together to collect VAT in accordance with the GCC VAT Framework Agreement per 2018, now I foresee with Qatar pushed more or less (temporarily?) out of the GCC, they will not be able to comply and continue with the (original and signed) agreed implementation and may rather choose for standalone VAT implementations for the time being in every country.

This political change may be ‘the solution’ or escape for all GCC countries to delay the implementation (without losing face) and implement a standalone solution per country as soon as each country (and especially all businesses) is ready and until the situation is stabilized. 

Of course a standalone implementation requires modifications to any existing draft VAT legislation (approved already in various parliaments) they were working on so this means further delay until they publish their local VAT legislation in any case.

I also enclose a link to the draft local legislation of the Kingdom of Saudi Arabia they published recently. It is open for input and suggestions before they finalize. They welcome input from anyone.

I think that the IVA has an opportunity here to provide input as an organization and therefore I ask members of the IVA who are looking into this legislation to share and jointly submit input on behalf of the IVA. Again the question is – what is the status of this KSA draft VAT law now Qatar is (temporarily) out……will the draft be revoked? 

https://www.gazt.gov.sa/dzit_logon/MenuItems.jsp?menu_id=vatform&portalapp=x&ume.logon.locale=en 

If you would like to share your input and suggestions please send them to Raymond Feen: raymond@allvat.com and copied to Alexandra at info@vatassociation.org 

 

Raymond Feen
ALLVAT, Netherlands