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Value Added Tax in the GCC Countries

Rising Complexities in Value Added Tax (VAT) Regime in the GCC Countries during the Post Coronavirus Pandemic

Last Updated on July 2, 2021



The Coronavirus pandemic has taken a massive toll on most of the global economies and the GCC countries are no exceptions. Mandatory lockdown measures along with social distancing have considerably slowed down economic activities and consumer demands and spending, and in turn, greatly reduced Government revenues.

With differing VAT requirements amongst the GCC countries and the recent hike in the KSA VAT rate due to fiscal imbalance, there will be a definite impact on Inter-GCC VAT transactions. Significant legislative updates and developments are also underway along with changing guidelines and clarifications from Tax authorities and ministries. Complying with the new VAT regulations and requirements may pose serious challenges for companies in the GCC countries and outsourcing expert help and guidance would surely make the perfect sense in the post-pandemic era.

IMC, with its long exposure in handling VAT and GST matters, can be a potential source of support for the GCC companies.

History of VAT in the GCC Countries

Value Added Tax (VAT) was first introduced in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) back in 2018. These are the two Gulf cooperation council (GCC) countries where VAT was levied at a standard rate of 5% and on taxable goods and services supplied within the respective jurisdictions, including the imports of goods and services. Since then many developments have taken place in VAT in GCC countries.

Six GCC countries; the UAE, Bahrain, KSA, Oman, Qatar and Kuwait signed the GCC VAT Framework Agreement in June 2016. The agreement is a set of rules based on which individual GCC countries would introduce their VAT regime domestically.

After the UAE and the KSA in 2018, VAT was introduced in Bahrain in 2019 and a staggered manner. Oman Ministry of Commerce and Industry has announced the VAT implementation date in 2021. However, no official news has been aired by Qatar and Kuwait officials on VAT implementation timeline.

With VAT applicable in the UAE and the KSA for more than two and a half years now, there has been an increase in VAT Audits by the local authorities. There are however many VAT related disputes in these two jurisdictions on VAT assessments and penalties.

IMC Tax Consultants are well conversant with adequate skill sets in VAT and could be the perfect choice in resolving VAT disputes and avoiding penalties.

Introduction of VAT in the GCC Countries

Not so distant past, oil and gas were the most significant commodity to the growth and development of GCC countries. However, with Brent crude prices falling sharply in the global market it has been a wise and sustainable move for the GCC countries to diversify their sources of revenues. VAT, an indirect tax is also such a move to generate income for the Governments.

As VAT ultimately gets transferred to the end customer, the general consumers take the maximum hit. The GCC countries didn’t want to put much burden on general consumers and kept the standard VAT rate lower. The KSA, however in its official release in May 2020 tripled the VAT rate from 5% to 15% in a bid to counter the economic implications of Coronavirus pandemic. This sudden and surprising move of tripling the VAT rate has been primarily intended to address the fiscal deficit caused by lower consumer demands and loss of tax revenues, loss in revenue due to falling oil prices, and increase in Government spending towards healthcare. The UAE Ministry of Finance announced that there would be no change in the VAT rate in the UAE.

Comparison of VAT amongst GCC Countries

There are different VAT requirements amongst the GCC countries and are based on the following

1. Industry-Specific Requirements

  • Foods
  • Financial Services
  • Healthcare
  • Oil and Gas
  • Transportation
  • Education
  • Real Estate

2. VAT Documentation Requirements

  • Tax Invoices
  • Record Retention

3. VAT Returns -Input Tax Recovery

  • No Recovery- Blocked Input Tax
  • Partial Exemption

4. Supplies

  • Internal Supplies
  • Free goods/services
  • Bad debts

5. Transitional Provisions

  • Time of Supply
  • Contracts
  • Registration

6. Penalties

VAT Hike in the KSA and Implications

It was tough going for the KSA Government post-Covid and compelled it to triple the VAT rate to 15% from the earlier 5%. Though the entire picture and associated implications are still not very clear, an overall assessment has been made in this regard.

Implications for Consumers

VAT is a consumption tax and mostly lowers the spendings in the middle and lower-income people. An instant hike in spending was noticed in the car and other luxury good segments just before the new VAT rate was put into force.

Implications for Business

As VAT is finally passed on to the end-user, many businesses have been considering sharing the tax burden with consumers for remaining competitive. The profitability of financial services and real estate businesses with the majority of their goods and services being tax-free is adversely affected as they are not able to claim input VAT incurred.

Schools and hospitals would also be in a disadvantageous position as they are also prohibited to claim VAT on their expenses.

As the VAT rate has gone up, the risk of making mistakes in accounting has also gone up simultaneously. Error-free reporting of VAT has become vital for avoiding hefty penalties.

Implications for GCC

As per the VAT Framework Agreement amongst GCC countries, the VAT rate needs to be aligned across the six participants. The future of VAT in the GCC region is still unclear and it is also to be watched if the remaining countries enhance VAT rates like the KSA.

Transitional Provisions

All existing contracts need to be reviewed for the transitional provisions in terms of the effective date of the newly increased VAT rate and continuous supplies.

IMC can help you with your VAT Compliance in the GCC

IMC VAT Consultancy Services is managed by professionally qualified Tax consultants who keep themselves constantly updated with the changing rules, regulations and other requirements of VAT in the GCC countries.

As many queries about the VAT rate hike by the KSA Government remain unanswered at this point of time, IMC is keeping a close eye on all the latest developments being unfolded. All businesses must evaluate the repercussions for their operations now and plan necessary preventive measures.

With growing complexities in VAT regulations and requirements in the GCC, it is strongly recommended that you hire IMC VAT Consultancy Services for efficient handling and timely compliance of VAT related issues.


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