Global value added tax - Gulf Cooperation Council
Key developments as the GCC introduces VAT for the first time
INSIGHT ARTICLE |
As Gulf Cooperation Council (GCC) countries continue introducing value added tax (VAT) into the region, questions about the overall implications arise. The following information provides a high-level view into the impacted countries, timetable and practical guidance on what businesses affected by the changes need to be considering now.
Who will be impacted?
Businesses that trade in the GCC, whether they are resident or non-resident, and make supplies that are defined as taxable for VAT purposes will likely have obligations to register for VAT and to meet various compliance requirements. The initial registration threshold has been set at approximately $100,000 of taxable income and the standard VAT rate will initially be 5 percent.
Which countries are in the GCC?
The GCC is comprised of the Kingdom of Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Oman, Bahrain and Qatar.
What is the timetable for change?
Saudi Arabia and the United Arab Emirates have released VAT legislation and announced that the new VAT regulations will be effective beginning Jan. 1, 2018.
Kuwait, Oman, Bahrain and Qatar are scheduled to implement the new VAT regulations effective Jan. 1, 2019.
Consequently, businesses that are affected by the changes in Saudi Arabia and the UAE have an urgent need to implement changes to comply with the new regulations and be fully effective by Jan. 1, 2018. Action in relation to the other GCC countries could be deferred until more details are known and changes can be more effectively managed.
Immediate practical steps to take include:
- Assess your exposure to VAT regulations
VAT is a transaction tax. Income generated from transactions with customers in the UAE or Saudi Arabia or from operations established in the UAE or Saudi Arabia could be subject to VAT. This means that even businesses that are not a resident or otherwise established in one of those countries could still have a liability and obligation to account for VAT.
- Register for VAT
The online registration portal for Saudi Arabia is now accessible and the one for the UAE should be available later in September. Affected businesses should allow time to complete the registration process and set up accounting and compliance systems with the issued VAT number.
- Set up invoicing templates
Invoicing regulations set out what needs to be included to produce a valid sales invoice. Businesses should aim to automate these processes where possible to ensure consistency, accuracy and compliance.
- Configure accounting systems
There are several critical steps that need to be taken to configure accounting systems to embed VAT logic required to support automated accounting and compliance processes. At a minimum, configuration will be needed for accounts receivable, accounts payable and employee expenses.
- Establish a compliance process
Reporting VAT to the tax authorities will require individuals with the knowledge and skills to accurately and effectively process VAT data produced by accounting systems and subsequently generate VAT returns to be submitted to tax authorities. Additional training may be needed to support these new processes.
- Customer and supplier communications
As part of a supply chain, it is important that customers and suppliers are informed of any changes to their underlying transactions, as they too may need to make adjustments to their VAT status and processes. Similarly, any standing data in ERP systems may need to be updated to add new information relating to customer and supplier VAT status.
How can RSM help?
RSM has operations in each of the GCC countries and notably, given the immediate need in the initial two launch countries, has the technical resources in Saudi Arabia and the UAE to support any of the practical steps noted above. Our professionals can work with you to:
- Assess VAT exposure and advise on options to mitigate VAT exposure or how to best comply with the rules
- Register businesses for VAT, collating relevant information and filing applications
- Set up compliance processes and advise on what documentation may need to be produced or received to support VAT decisions taken by the business
- Provide outsourced VAT compliance services, which may be required if the business does not have the requisite skills and experience available from internal resources
- Provide training to build knowledge and skills around new VAT regulations and compliance processes