VAT and Excise Tax developments in the GCC | KPMG | GLOBAL

Value added tax (VAT) and excise tax developments in the Gulf Cooperation Council (GCC)

VAT and excise tax developments in the GCC

In order to keep up with the changing economic landscape and as part of wider development reforms, the GCC member states signed a framework agreement to introduce VAT on the supply of goods and services at a standard rate of 5%, in 2018.

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VAT

The Unified Agreement for VAT of the Cooperation Council for the Arab States of the Gulf was published in Saudi Arabia official gazette in April 2017. The unified agreement sets out the framework under which VAT can be implemented in each of the GCC member states. The framework includes agreement on certain matters but allows member states discretion on how to treat others. Once the agreement is ratified, each member state can interpret the framework into its own local law and implement VAT. Some member states, notably the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA), have indicated an intention to implement VAT with effect from 1 January 2018. The framework allows for a basic rate of VAT of 5% as well as allowing for certain supplies of goods and services to be zero-rated or VAT exempt.

KPMG examines the GCC VAT Framework Agreement, and analyzes the implications on businesses across the main economic sectors. Please read more (PDF 236 KB) 

In addition to this we also have a copy of the framework translated into English. Please read more (PDF 333 KB)

KSA - Publication of the VAT legislation

The General Authority of Zakat and Tax (“the Authority”) of the KSA has published the Value Added Tax draft law (“the Law”) for public consultation on the 29 May 2017.

The draft law outlines all key areas to be implemented within the Saudi Arabian VAT system. The operational mechanism will be provided in the Implementing Regulations (“the Regulations”) which is expected to be issued shortly.

The Law will work synchronously with both the Unified VAT Agreement of the GCC (“the Agreement”) and the Regulations.

Below are some of key areas which will require consultation:

  • Registration and reporting
  • VAT reporting and filing
  • Invoice/Cash accounting
  • Group registration
  • Tax Refunds 
  • Tax Returns and Payment of Tax
  • Retention of Records
  • Reviews and Appeals

 

Penalties and Fines

The Law did provide significant details in relation to penalties. The Law outlines penalties for almost every kind of error that could be made under the system. 

In general, the penalties will range from 2% up to 200% of the net VAT payable. Entities who fail to register for VAT will be fined SAR 10,000. 

 

Next Steps

 The Government is determined to implement VAT in Saudi Arabia on the 1 January 2018 and the release of the Law is another to achieve this objective.

Businesses operating in the Kingdom need to take immediate steps to become compliant with the respective VAT laws. Saudi businesses should initiate a VAT impact assessment immediately in order to determine the impact that VAT will have across their operations. 

This assessment should consider the VAT impact on the following key areas:

  • Finance and accounting 
  • IT and systems 
  • Tax and compliance 
  • Supply chain – goods and services 
  • Contracts 
  • Sales and marketing 
  • Legal structure 
  • Human resources 

UAE - A step towards VAT implementation

The Ministry of Finance has held a series VAT workshops from March 2017 to May 2017, for the general business community within the UAE.  

This initiative is a strong indication of the government’s intention to implement VAT early in 2018. This leaves a very short window of opportunity for businesses to assess – and prepare for - the impact of VAT on their operations and pricing.

The Ministry of Finance has also mentioned that the VAT law is likely to be released soon and the executive regulations to the VAT law would follow in due course. 

Qatar - Draft Law for VAT approved

On 3 May 2017, Qatar Cabinet announced the approval of a draft law on VAT and its draft executive regulations. This comes following the State of Qatar signing of the unified agreement for VAT for the GCC countries, paving the way for VAT implementation in Qatar and the region by 2018. 

VAT will be charged at a unified rate of 5% on the supply of goods and services. However, it would not apply to the certain areas that are unilaterally agreed upon, by the GCC countries.

Once the local legislation is released, it will provide details on how the State of Qatar will interpret the GCC framework and deal with key matters where it has discretion. These will include whether to treat certain supplies as zero-rated or VAT exempt. The local law will include details on the conditions for VAT deductions, VAT grouping, transactions assimilated with taxable supplies, record and reporting requirements and further definitions to enable a correct VAT treatment by companies of their supplies and overall business environment.

VAT will impact all businesses in the region, either directly or indirectly. However, it should have a neutral impact if managed effectively. Today, companies need to review their procurement processes, operating models, legal structure and systems to be well prepared for this significant development that is set to change the business landscape.

Oman - Timelines for introduction of VAT

Based on the assessment of the state of readiness, it is expected that the implementation of VAT in Oman is likely to take place in the latter part of 2018.

Excise Tax

The Excise Tax Treaty for the GCC was issued in April 2017 and it forms the common framework for the introduction of excise tax across all six Member States. The treaty is the basis of national Excise Tax legislations by each GCC Member State.

The KSA’s General Authority of Zakat and Tax has also published its user manual for those required to register for Excise Tax.

KSA – Excise Tax introduced

The General Authority of Zakat and Tax has published the executive excise tax regulations, and the following are the most prominent things arising out of it:

Administrative:

Regardless of whether an entity is required to register or not, every entity that holds selective items with a total value exceeding SAR 60,000 must submit a one-time transitional return and pay the excise tax liability within 45 days from the effective date of the regulations. 

For the purposes of the one-time transitional return, selective items must be inventoried on Ramadan 16, 1438 corresponding to 11 June 2017. 

On a regular basis, registered entity must file 6 returns per year; a return every 2 months. The grace period for filing is 15 days after the end of the 2 months. 

 

Taxable warehouses: 

In order for a warehouse to qualify to be a licensed taxable warehouse, certain terms and conditions must apply. 

When storing selective items in a taxable warehouse, the licensee must provide the Authority with a financial guarantee. The value of the financial guarantee must be equal to 5% of the estimated stored quantity of the selective items multiplied by its retail price. 

 

Exemptions: 

Selective items imported with less than the following amounts are considered to be exempted: 200 cigarettes, 500 grams of other tobacco products, 20 liters of soft drink, and 10 liters of energy drinks. 

 

Refunds: 

Entities registered for commercial purposes in any GCC Member State and entities engaged in exporting activity may apply for a selective tax refund. 

 

Key Takeaway: 

Businesses who are involved with providing selective goods to consumers need to ensure that they are compliant with the excise tax regulations in a timely manner. 

Kuwait - Kuwait Prepares for Excise

According to local media sources (Al–Anba Newspaper, article dated 17 April 2017), the Minister of Finance in Kuwait has prepared an Excise Bill. If the media reports hold true, the Excise Bill will be sent for debate and ratification by the legislative bodies.

The Kuwait Tax Authority (“KTA”) has not provided an official statement in connection with the proposed Excise Bill, its proposed timing for implementation and detailed administrative procedures. However, in accordance with Article 30 of the Excise Bill, the law would be in force following lapse of fifteen (15) days from the publishing date in the Official Kuwait Gazette.

Please read more (PDF 357 KB)

Qatar – Draft Law for Excise Tax approved

On 3 May 2017, Qatar Cabinet approved the draft decision of the Council of Ministers to issue the executive regulation of the selective tax law (excise taxes).

The Excise Bill is prepared in line with the GCC Unified Treaty (“Excise Treaty”) for excise taxation, which forms the framework through which GCC Member States will implement their own excise legislation (“domestic excise law”).

This legislation forms part of the GCC economic reforms in order to raise Government revenues and to discourage consumption of specific products with harmful impact to users. This is a dynamic policy shift in the region at promoting fiscal stability and promoting economic growth.

Excise is an indirect tax imposed on the consumers of specific products, which the Government deem as harmful for health and environment. Certain luxury products may also be included in the list, which have negative health effects. Excise falls into two categories namely ad valorem and specific. The former are fixed percentage rates assessed on particular goods or services, whilst the latter are specific amounts applied to certain purchases.

UAE - Ministry of Finance explains Excise Tax developments

The UAE’s Ministry of Finance held an excise tax awareness session to explain the new excise tax system for anyone involved in the importation, production and sale of excisable goods.

While each GCC country can individually decide tax rates and which goods are taxable, excise taxes have been capped at 100 percent. The draft excise tax law was approved by the Federal National Council in March 2017 and the final excise tax law is expected to be published soon.

Please read more.

MESA Tax Update - July 2017

Welcome to the latest edition of our Middle East and South Asia (MESA) Tax Update, bringing you the latest news in tax from the MESA region.

 
Read more

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