GCC Indirect Tax developments | KPMG | GLOBAL

GCC Indirect Tax developments

GCC Indirect Tax developments

Here are some highlights of the recent GCC Indirect Tax developments.

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Kingdom of Saudi Arabia

  • VAT Registration
  • Which businesses should register?

Mandatory Registration

All companies, businesses or entities which make an annual taxable supply of goods and services in excess of SAR 375,000 are legally required to register for VAT by 20th December 2017.However, all taxable persons whose annual taxable supplies exceed the mandatory Registration threshold but do not exceed SAR 1,000,000 will be exempted from the requirement to register until 20th December 2018.

Voluntary Registration

Those which make an annual taxable supply of goods and services in excess of SAR 187,500 are eligible for voluntary Registration. Voluntary Registration provides significant benefits for the companies since it allows the deduction of input tax.

Registration of taxable persons not Resident in Saudi Arabia

Non-Residents, who carry on economic activities but have no fixed place of business or fixed establishment in Saudi Arabia, will be required to register if they have the obligation to pay VAT in Saudi Arabia.

All Non-Resident taxable persons must have one Tax Representative established in Saudi Arabia and who is approved by General Authority of Zakat and Tax (GAZT). 

GAZT approved VAT Implementing Regulations

The Board of Directors of the GAZT has approved the VAT Implementing Regulations ahead of the introduction of VAT in the Kingdom of Saudi Arabia on 1st January 2018. The regulations govern all the aspects of implementing VAT in the Kingdom, and set up the scope of taxation for certain goods and services, explain registration rules and eligibility of businesses for VAT, zero-rated and exempted supplies, the treatment of imports and exports, among other areas. The regulations include 75 articles, divided in 12 chapters. 

Summary of KSA VAT regulations:

  • Registration Threshold is SAR 375,000. Group Registration is allowed in case of 50% or more common shareholding.
  • Monthly return is required in case Annual turnover exceeds SAR 40 Million otherwise quarterly return.
  • Fair Value Method will be applicable in case of transactions between related party.
  • Margin based financial services are exempt. However, fixed fees (such as commission, bank charges etc.) will be VATable at Standard rate.
  • Tax Invoice must be issued within 15 days following the month of taxable supply. Debit and Credit Invoice must have Tax Invoice Seq number.
  • Zero rate in case of contract entered prior to 01.05.2017, up to earlier of Contract expires/renewed or 31.12.2018.
  • Deregistration and Grandfathering conditions have been tightened
  • All tax invoices must be in Arabic - and any language on an invoice that is not in Arabic must be translated into Arabic

In order to access the VAT Law, please follow the link

In order to access the VAT Implementing Regulations, please follow the link

GAZT Signed MoUs with Accounting and IT Service Providers

The GAZT has signed Memorandums of Understanding (MoUs) with providers of accounting and IT software solutions, with the aim to support small and medium enterprises (SMEs) prepare for the introduction of VAT on the on 1st January, 2018.  

The service providers will provide SMEs with accounting and IT software solutions to comply with VAT requirements, including preparing accounting entries and tax returns, as well as sending the required data to GAZT as prescribed under the VAT regulations. These solutions would be offered at competitive prices to mitigate the financial burden on SMEs. The MoUs will run for a period of one year from the date of signing. 

United Arab Emirates

  • The UAE VAT registration is now open
  • Deadlines for UAE VAT registration announced

The UAE Federal Tax Authority (FTA) has announced the deadlines for VAT registration in the UAE. This has been summarized below:

  • Businesses with a turnover exceeding AED 150m should have applied for registration before October 31, 2017. However if they haven’t, businesses can still register for the same. 
  • Businesses with a turnover exceeding AED 10m should apply for registration before November 30, 2017.
  • All other business entities should submit their application before December 04, 2017 so as to minimize the risk of not being registered in time for VAT go-live.

Businesses can register here through the e-Services portal on the FTA website. Individual businesses can and are encouraged to start the registration as soon as possible.

In order to access the VAT Law, please follow the link

Executive Regulations of Federal Law No. (7) of 2017 on Tax Procedures

The UAE Federal Tax Authority (“FTA”) published Cabinet Decision No. (36) of 2017 on the Executive Regulations of Federal Law No. (7) of 2017 on Tax Procedures. The regulations sets the procedures and rules to be applied to all taxes imposed in UAE covering all the details of tax procedures on keeping records, registration and de-registration for tax purposes, tax obligations, voluntary disclosure, tax notifications, tax agents, tax audits, tax administrative penalties, tax refunds, disclosure of information, and reduction or exemption from administrative penalties.

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Excise Tax introduced

The UAE on October 1 implemented excise tax on select items in the country thereby doubling the price for tobacco products and caffeinated drinks, while prices of sugary drinks increased by 50 percent.

The tax affects specific "excise" goods that are produced in the UAE, imported into it or stockpiled in the Emirates, as well as excise goods released from a designated zone.

Executive Regulations on the Federal Decree Law on Excise Tax

The Cabinet Decision No. (37) of 2017 on the Executive Regulations of the Federal Decree-Law No. (7) of 2017 on Excise Tax has been issued and published by the UAE Federal Tax Authority. The regulations sets out the rules to be applied on the Excise Tax and covers the following: liability to tax, registration, rules on tax payment, exemption for exported goods, designated zones, calculation of due tax, tax returns, tax periods, & payment of tax, refunds of excise tax, other tax refunds, and keeping of tax records.

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Excise Goods, Excise Tax Rates and the Excise Price Calculation

The Cabinet Decision No. (38) of 2017 on Excise Goods, Excise Tax Rates and the Method of Calculating the Excise Price has been issued and published by the UAE Federal Tax Authority. It mainly defines the excise goods, excise tax rates imposed, method of calculating the excise price, and designated retail sales price. The decision will come into effect as of 1st October 2017 and will be published in the Official Gazette.

Source

Bahrain

There have not been any public updates in Bahrain following the confirmation of the Minister of Finance in February on the commitment that Bahrain has undertaken to introduce VAT under the Unified GCC VAT framework agreement by mid-2018. Several steps have been taken though by the Bahraini Ministry of Finance to pave the way for such introduction of VAT. These include an economic impact study to review the expected 12-months revenue of VAT based on several scenarios which will be presented to the Parliament early November. The Ministry of Finance has also started with the review and update of existing draft VAT Law and Regulations. Finally an approach is being developed on the structure and set-up of the new Bahraini Tax Authority.

Bahrain Cabinet approves excise tax draft law

Bahrain’s Cabinet has approved the draft law ratifying the Gulf Cooperation Council (GCC) unified excise tax, the kingdom's official news agency stated.

The Cabinet has endorsed a selective excise tax bill that would impose a 100 percent tax on tobacco products, energy drinks and harmful goods to human health, as well as a 50 percent tax on carbonated beverages with the exception of carbonated water.

The bill also regulates tax registration and retrieval, exemption cases, and tax evasion procedures. The GCC agreement on excise tax sets a unified framework for policy and means of collecting the tax in Gulf countries.

Kuwait

The Kuwaiti Council of Ministers held a meeting on 7th August 2017, headed by Prime Minister. During the meeting, the Council was presented a draft law approving The Unified GCC VAT Framework Agreement and the GCC Unified Selective Excise Tax Agreement. The Council decided to approve the aforementioned draft laws and submit them to His Highness the Amir, in preparation for their referral to the National Assembly.

Oman

The Kingdom of Saudi Arabia published the Unified Agreement for Value Added Tax (VAT) of the Cooperation Council for the Arab States of the Gulf (the “GCC Framework”) in Arabic earlier this year. Saudi Arabia and the United Arab Emirates have started the VAT registration process and announced their intention to apply the VAT from 1 January 2018. 

In Oman, the GCC Framework is expected to be formally ratified by His Majesty later this year, after its review and endorsement by the Majlis Al Shura and the State Council. Previously, the Ministry of Finance in Oman announced its intention to implement VAT in conjunction with the other GCC states and asked businesses to start preparing for it. 

However, based on an assessment of the state of readiness, it is expected that it may take longer for the Omani government to implement VAT. The VAT laws issued by Saudi Arabia and the UAE, Saudi Arabia’s executive regulations for VAT and the GCC Framework offer guidance for Omani businesses wishing to prepare for VAT implementation early.

While the VAT is not intended to be a tax on business, collecting the tax and remitting it to the government will have significant compliance costs and, for some businesses, cash flow implications. Companies doing business in Oman should review their supply chains to understand the impact of VAT. Adapting to VAT will require updating or upgrading enterprise resource planning and information technology systems and interfaces to correctly capture input and output VAT. 

Qatar

The current absence of published domestic VAT legislation in Qatar should not stop companies from getting ready as the underlying principles for VAT treatment are clear and known, whereby global indirect taxes best practice gives valuable insights. Qatar has not withdrawn from the commitment of implementing VAT in 2018.

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