The United Arab Emirates and the Kingdom of Saudi Arabia have introduced Value Added Tax (VAT) at a standard rate of 5 percent with a few goods and services zero-rated and exempted in order to move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Here are some highlights of the recent GCC Indirect Tax developments.
VAT Return Filing Manual for the Kingdom of Saudi Arabia has been published. You can view it here.
The General Authority for Zakat and Tax (GAZT) invites non-resident entities that carry out economic activities in the Kingdom to register for VAT purposes, and to appoint a tax representative to be responsible for carrying out the non-resident’s VAT obligations such at tax filings and record maintenance.
The General Authority of Zakat & Tax (GAZT) clarified that exports from Saudi Arabia are zero-rated under the VAT Law and Implementing Regulations. According to Article 32 of the Implementing Regulations, in order to apply the zero rate, the supplier of those goods and services must retain evidence that they have been transported from the GCC region within 90 days after the supply has taken place. As a transitional period, all intra-GCC supplies will be considered zero-rated until VAT is officially implemented in the remaining member nations and the central GCC-wide electronic VAT system is established.
The Federal Tax Authority (FTA) has outlined a simple four-step online procedure allowing businesses to easily submit their tax returns via the e-Services portal on the Authority’s website.
The FTA launched a comprehensive awareness campaign titled “filing Returns in 4 Steps”, covering social, digital and other media channels. The campaign targets businesses registered for Value Added Tax (VAT), introducing them to the online system that the FTA had launched. From the beginning of February 2018, the system has been open to receiving tax returns for the first Tax Period ending on January 31, 2018, for some businesses, which are required to submit their returns no later than February 28, 2018.
Monthly and Quarterly returns
In its “filing Returns in 4 Steps” campaign, the FTA explains that businesses registered in the VAT system are required to submit their returns on a monthly or quarterly basis, as specified by the Authority. Information about Tax Periods is available on the FTA website, where registered businesses can check their allocated tax periods and whether their first tax period ended on 31 January 2018.
The Authority mandates that Tax Returns must be received no later than the 28th day following the end of the Tax Period concerned, providing a number of methods to process the payment of any tax via the e-Dirham platform.
The FTA stressed that Taxable Persons should prepare all tax return requirements before starting the online submission.
The first step to submitting tax returns is to enter the e-Services portal on the Authority’s website, then choose the “VAT” tab and scroll to the company’s dedicated “VAT Returns” page and initiate a new VAT return.
Step two is to enter the data in the return, including sales and other outputs, and expenses and other input, writing the net amount excluding VAT, as well as the VAT amount. And the system will calculate the tax payable or repayable.
The third step is to submit the tax return after thoroughly reviewing it, while the fourth and final step is to pay the due tax through “My Payments” tab, ensuring payment deadlines are met.
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The FTA also released the Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax. The Cabinet clearly states the Designated Zones (for each Emirate) for the purpose of applying VAT decree law in the United Arab Emirates.
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Excise duty was implemented in Bahrain on 30 December 2017.
|Excisable goods||Excise tax rate|
Bahrain Ministry of Finance has released the implementing regulations for the law No (40) for 2017 on the Excise Tax. The regulations set out the provisions for the implementation of the excise tax law in Bahrain. Expanding on the excise tax law provisions, the regulations specify in details the process of applying for the registration for excise tax, amending and cancelling the application. In addition, the regulations set the conditions that shall be met in the tax warehouses, excise goods production and storage, and the how the registrant can apply for tax warehouse license with reference to the financial guarantee that shall be provided.
The implementing regulations also specify the following:
The Ministry of Finance in Oman recently announced that it has postponed the implementation of VAT to 2019 and may implement application of excise tax during 2018. As per the GCC Excise Framework Agreement, the products to be covered by the excise tax include alcohol, tobacco, cigarettes and energy drinks.
How upcoming VAT will impact businesses in Qatar
In Qatar, it is expected that VAT will become in force by 1 January 2019. This means the taxpayers in Qatar need to go through their processes to understand the impact of VAT and ensure they are able to comply with the requirements within the specified timeframe.
At this moment, a question arises on how the implementation of VAT will affect businesses in Qatar for a new tax perspective. VAT is intended to be 'neutral', in that businesses are able to reclaim any VAT that they pay on goods or services but some companies who will be making exempt supplies will not be able to recover the incurred input VAT which, in turn, need to recognize those amounts as additional cost. VAT relies on a staged collection mechanism. Successive taxpayers are entitled to deduct input tax on purchases and must account for output tax on sales. In the end, the tax collected by tax authorities through this supply chain should equal the VAT paid by the final consumer to the last vendor.
VAT implementation will not only affect businesses from the perspective of procedures and systems, it will also have a major impact on their workforce and put pressure on organizations.
Another aspect that businesses might be careful about the existing sales and/or procurement contracts that are silent on the taxes. This said, the enterprises have concerns to suffer from a decrease in revenue by 5% as the result of implementation of VAT. In this regard, framework agreement gives right to the member states to determine the conditions to consider such contract fees as inclusive or exclusive of VAT.
The member states that have already implemented VAT will have special rules to protect businesses for contracts that straddle VAT implementation.
In the UAE, under normal circumstances, where the contract is silent on VAT, the price will be deemed to be inclusive of VAT. However, where the contract was concluded prior to the implementation date and a part of the supply is made after the implementation date, suppliers will be able to charge the tax to the customer where the latter is able to recover it.
In KSA, for contracts that were entered into before May 31 2017 and are silent on VAT, the supply can be treated as zero rated until the end of the contract or December 31 2018 where the customer is entitled to deduct input VAT.
Similarly, Qatar Tax Department is to publish the circumstances in the local VAT legislation in relation to the silent contracts to be treated as inclusive or exclusive of VAT. For the moment, the exact treatment cannot be defined since the member states are given broad independence in this matter. However, what is for sure for now is the fact that the authority will introduce the necessary provisions to insure both parties do not suffer from the implementation of VAT.
In our experience from the other member states who have recently implemented VAT shown that businesses need significant lead time to prepare their organizations, customers, vendors and ERP systems for the introduction of VAT and also businesses who began planning for the implementation project early had successful implementations and were ready on go-live date In order to ensure successful transition of the business, companies should already be considering how they will manage the potential introduction of VAT in the Qatar.
Media reports in the State of Kuwait (“Kuwait”) for the past week have indicated that the Kuwait Government is also working towards its own local VAT Law.
According to a news article published by Al Jarida1 on 17 December 2017, Ministry of Finance in Kuwait has responded to queries raised by National Assembly Foreign Affairs Committee on VAT by highlighting the positive financial and economic impact of ratifying the Unified GCC VAT Framework. The article also provides the following time-frame for the local VAT Law2:
|1||Drafting the VAT Law||October 2017|
|2||Seek approval from the Minister of Finance||November 2017|
|3||Seek feedback from the Tax Authority||December 2017|
|4||Issue the draft VAT Law||December 2017|
|5||Discuss draft VAT Law with Legislation Department||February 2018|
|6||Discuss draft VAT Law with Council of Ministers||March 2018|
|7||Draft VAT Law to be discussed in National Assembly and issue the VAT Law||May 2018|
|8||Training of tax inspectors||June 2018|
|9||Tax awareness sessions||June 2018|
|10||Preparing Executive Regulations to the VAT Law||November 2018|
It is interesting to note that another news article in the Kuwait Times3 on 19 December 2017 states that the Kuwait Assembly has already agreed to refer the draft VAT Law to the financial and economic affairs committee to study the contents of the Law.
2 The time-frame is not a certified translation and is provided for awareness only. It does not substitute for reading the official Arabic version, which will prevail in all cases.