All Gulf Co-operation Council (“GCC”) countries namely United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Oman, and Bahrain have reached to an agreement to levy the Value Added Tax (VAT) in the region. The framework has unified agreement on key matters but allows the members to act on their own discretion for other matters. These GCC countries had so far managed to finance their activities through the huge revenues derived from the sale of oil. This has allowed them to operate within a largely tax-free regime, whereby no VAT system existed. In recent years however, the value of oil has reduced significantly, and subsequently revenues have reduced dramatically. This has now led to the proposed implementation of VAT throughout the region
The GCC countries had agreed to implement the VAT in every country latest by 1st January 2019
UAE and KSA were the first to introduce VAT effective 1st January 2018 at the rate of 5% on all taxable supplies followed by Kingdom of Bahrain where 5% VAT was implemented effective 1st January 2019
Oman has indicated its intention to introduce value added tax (VAT) at 5% from early in 2021.
As a recent development, Saudi Arabia has tripled its value-added tax (VAT) rate on July 1, from 5 percent to 15 percent. The announcement came in mid-May following a wave of enormous cost-cutting programs to help counter the unprecedented economic fallout caused by the ongoing coronavirus pandemic. The focus of these cuts and the hike in VAT is to protect the health care and livelihoods of Saudi Arabians.
Saudi Arabia’s new VAT rate of 15 percent is still low compared to most developed economies.
Data from the Organisation for Economic Co-operation and Development (OECD), a group of major economies, shows the average VAT rate across member states that have the tax in place stood at 19.3 percent. Meanwhile, in Europe the average is even higher, with VAT across OECD member states averaging 21.4 percent.
VAT is a Value Added Tax levied at multiple stages of the journey of goods and service from its origin to final consumption. In laymen’s term it is a tax on ‘Value Addition’ as the goods and services move across the supply chain to the final consumer. The full burden of the tax is borne by the final consumer.
VAT is collected from the buyer (output tax) by a tax-registered business and deposited with the government after subtracting the VAT (input credit) that was paid to a tax-registered supplier for the corresponding goods or services. At each stage of the supply chain the government may collect the tax.
Value Added Tax is a tax on consumption levied at each stage of the supply chain and ultimately borne by the end consumer. VAT is a transaction-based indirect tax which is levied at each step of the supply chain. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority. VAT is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation). While it feels exactly the same as a general sales tax to end-consumers, VAT is a mor- e sophisticated tax and overcomes many challenges that affect the general sales tax.
The proposed rate of VAT in the UAE is 5%.
Taxable Person - Any person conducting economic activity for purpose of generating income. Includes businesses registered outside GCC territory
Economic Activity - Continuous and regular supply, commercial, industrial, agricultural and professional
Consideration - Could be in money or kind
Taxable Supply - Supply of goods and services for a consideration
Input VAT - Tax paid by a Person or due from him when Goods or Services are supplied to him, or when conducting an Import. These input taxes are recoverable by the registered person and can deduct the amount of VAT paid from his/her settlement with the tax authorities.
Output VAT - Tax charged on a Taxable Supply and any supply considered as a Taxable Supply.
Exempt Supply - A supply of Goods or Services for Consideration while conducting Business in the State, where no Tax is due, and no Input Tax may be recovered except according to the provisions of the Decree-Law. Exempt Supply covers bare land, local transport, the sale of residential property (second sale onwards) lease of the residential property and certain financial services.
Zero-rated supply - A taxable supply on which VAT is charged at 0% are zero rated supply and for which the related input VAT is deductible.
Zero rated supply includes exports, healthcare, education, international transport of passengers and goods, the first sale of residential property, medicine, and medical equipment, investment in gold, silver and platinum, crude oil & natural gas etc.
Standard Rate Supply - A Standard Rate Supply is a taxable supply on which VAT is charged at 5% and for which the related input VAT is deductible. Taxable Supplies which are not exempt supply or zero-rated supply, fall under standard rated supplies.
Reverse charge mechanism under UAE VAT - Reverse Charge Mechanism (RCM) under VAT eliminates the responsibility for the businesses outside the UAE to register for VAT in UAE. ... Under reverse charge mechanism (RCM), the overseas supplier does not charge VAT to the customer, the buyer or end customer pays the tax directly to the government authority. The Reverse Charge moves the responsibility for the reporting of a VAT transaction from the seller to the buyer of a good or service. ... When a transaction is subject to Reverse Charge, the recipient of the goods or services reports both their purchase (input VAT) and the supplier's sale (output VAT) in their VAT return.
Value Added Tax (or VAT) is an indirect tax which was announced by the UAE Minister of State for Financial Affairs, His Excellency Obaid Humaid Al Tayer that VAT will be introduced and implemented with effect from 1st January 2018 in UAE. The UAE Government also established The Federal Tax Authority (FTA) under Federal Law by Decree No. 13 of 2016. The authority takes charge of managing and collecting federal taxes and related fines, as well as distributing tax-generated revenues and applying the tax-related procedures in the UAE.
The authority’s Chairman is His Highness Sheikh Hamdan bin Rashid Al Maktoum Deputy Ruler of Dubai, and the UAE Minister of Finance, while His Excellency Khalid Al Bustani takes up the position of Director General. FTA will work alongside Ministry of Finance, in its drive to achieve economic diversification in the UAE, with a focus on profits derived from non-oil sources. It will work towards enhancing the financial stability of the UAE, and will provide guidance and assistance to businesses and consumers to ensure they meet their liabilities and understand fully the application of taxation in the country.
The FTA whose headquarters shall be in Abu Dhabi will be responsible for the collection and management of federal taxes. It will issue guidelines and directives to taxpayers on matters relating to the anticipated VAT and other taxes that may be imposed in the future. It has been assigned many related functions to Tax as fully provided in Article 4 of the Decree and combating Tax Evasion and Tax Avoidance, the FTA shall have the power to request access to any data and any third party available information relating to a person who is subject to tax audits.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia. Recently Indian Subcontinent enacted law Goods and Services Tax (GST).
VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
Our Consultancy Services shall include timely advise on your taxable transactions to ensure the basic compliance as per the VAT law and this include:
While making any purchase of taxable goods or services, ensure, whether input tax has been properly charged, by the vendor and details given in the invoices with VAT registration number details on it.
While making any taxable Supplies of goods or services, whether output tax has been properly charged and a proper TAX Invoice has been issued with all the details as required by law
Computation of Tax Payment due within specified date to the VAT Authorities.
Submission or Filing of the VAT returns to the Government authorities by providing the relevant information requested by the Government, within the stipulated period.
Services such as VAT Registrations, Deregistration, TAX Group Registration and Deregistration, Voluntary Disclosures, VAT Refund Applications, VAT Amendments etc.
Record Keeping as per the law relating to all taxable purchases, taxable supplies, documents relating to Imports of Goods and Services, document relating to export of Goods and Services,
Advise on how to maintain proper stock, sales invoices, purchase bills, accounts, VAT returns.
Please feel free to contact us for consultation, assistance and proposals.
VAT Accounting
VAT Accounting Set Up
VAT Registration
VAT Return Filing
VAT Compliance
VAT Consultancy
VAT Refund Application
VAT Voluntary Dislosure
VAT Reconsideration Forms
VAT De-Registration
