Value Added Tax (VAT) in the GCC Frequently asked ...

1 Value Added Tax (VAT) in the GCCF requently asked questions | Volume 203 VAT FAQ | Answering your VAT questionsContents04 Treaty and legislation05 Registration07 Taxable transactions08 Forms, reporting etc09 Financial services10 Electronically supplied services11 Imports and exports12 Free trade zones 13 Transitional issues14 Reverse charge and special rules15 VAT reliefs16 Appeals17 Input tax04 VAT FAQ | Answering your VAT questionsTreaty and legislationIs the Agreement published?The GCC VAT Agreement has been signedby all six GCC member states and hasbeen published in Arabic by the Kingdomof Saudi Arabia s (KSA) Ministry of Financewesbite. Deloitte s English translation isavailable on its is happened in KSA?

2 The KSA has now finalized and publishedits domestic VAT law and VAT follows earlier consultations run ondraft versions over the summer. Togetherwith the finalized GCC Agreement, the lawand regulations form the formal legalframework for the introduction of VATacross all sectors from 1 January have now been provided withthe full complement of rules tounderstand their obligations and theimpact of VAT for their businesses. TheVAT registration portal for all businesseseligible to register is now availablethrough the ERAD you think that there will be muchvariance in application of the rulesbetween member states?There will be a level of variance inapplication of the rules across the GCCmember states.

3 Similar to the EU, there are some provisions which arecompulsory, and others which areoptional, and others where there is achoice to be made on treatment at a local level. How each member stateapproaches the implementation of theseprovisions is likely to depend on theirindividual policy settings, economy, countries will implement VATon 1 January ?The issue of local laws in the KSA andUnited Arab Emirates (UAE) confirmsearlier announcements by these countriesthat VAT will be introduced domestically inJanuary 2018. It is unclear when the restof the countries will implement currentlybut this is expected to progressivelyhappen through is happened in the UAE?The UAE published its VAT law on 27 August, confirming many of the details ofthe domestic VAT rules which had beensignaled in an earlier Frequently AskedQuestions document issued by theFederal Tax Authority, such as the sectorseligible for exemptions and publication of the law is the first stepin the establishment of the complete VATframework in the UAE.

4 The VAT ExecutiveRegulations are currently still in theprocess of being prepared and approved,and it is expected that they will beenacted and made public before the end of summer. Treatyand legislation05 VAT FAQ | Answering your VAT questionsRegistrationWhat are the VAT registrationrequirements?An established business in the GCCperforming economic activities mustregister for VAT if it performs taxablesupplies or imports that exceed themandatory registration threshold of SAR375,000 (or the local equivalent) andmay choose to register for VAT voluntarilyif its supplies and imports are less thanthe mandatory registration threshold butexceed the voluntary registrationthreshold of SAR187,500.

5 When to use your VAT number A customer VAT number will be needed to enable a supplier of goods and servicesto a recipient in another GCC country toinvoice without VAT. In the long run, aportal to enable the checking of VATnumbers is expected to be of registration VAT registration is expected to be largelyonline. Additional documentation may berequested offline (likely to vary by GCCmember state).Language used for registrationThe expectation is that the registrationplatform will be available in English. This is confirmed to be the case for KSA andthe VAT registrationrequirement If an entity has a PermanentEstablishment (PE) for corporate taxpurposes in a member state, then it isvery likely to also have an establishmentfor VAT purposes in that country.

6 The barfor a PE is arguably higher than that forhaving an establishment for VATpurposes. Where it is unclear whichestablishment of a legal entity ( thehead office or the PE) has made thesupply then an analysis would be requiredas to the establishment most closelyconnected with the supply. Where such aPE is considered to be making taxablesupplies, a VAT registration would zero-rated supplies count for theregistration threshold?Yes, the taxable supplies including zero-rated supplies count for the registrationthreshold. However, note that it might bepossible that some GCC member stateswill allow, under certain conditions, acompany which only makes zero-ratedsupplies to be excluded from themandatory registration on request.

7 TheUAE and KSA have indicated that they mayallow such exclusions in certain only residents can be VATregistered, does this mean thatoffshore companies cannot be VATregistered?There is a requirement for non-residentsto register for VAT in the GCC, in the eventthat they need to pay VAT on suppliesmade by them in a GCC member state( the place of supply is in the GCC andthe customer is not able to self-accountfor the VAT due under the reverse chargemechanism). Will associations of persons ( openconsortium) be considered as ataxable person?Whilst the GCC Agreement does makereference to companies being able toform VAT groups, it does not specificallyconfirm the legal form required to be there be a common system of VAT registration so you can checkwhether you are dealing with ataxable person?

8 The GCC Agreement envisages anelectronic matching system for intra-GCCsystems. In practice we do not think thissystem will be available for a while and soit is likely a VAT number checking systemwill be made available country by a business selling across the GCCbe liable to register in each memberstate if only established in one? A business selling across the GCC will onlybe required/entitled to register for VAT inanother member state if the nature of itssupplies of goods and services requires itto be ( the place of supply is in anotherGCC member state and the reversecharge mechanism cannot be used). Will businesses established in oneGCC member state and providingservices to individuals ( non-taxable persons) in another memberstate be required to register for VATin that second member state?

9 It is unlikely that a second registrationwould be required. The place of supply forservices supplied to individuals is normallyRegistration06 VAT FAQ | Answering your VAT questionsthe country of the supplier, which wouldrequire the supplier to charge VAT fromthe country in which the supply is made. Will there be group registration forcompanies in the GCC? Based on the GCC Agreement, memberstates do have the discretion toimplement VAT groups. The UAE and KSAlaws indicate that grouping will beavailable for groups of legal personsestablished in these respective countries,depending on control requirements we VAT group establishments indifferent GCC states?We do not expect that it will be possible to VAT group entities across GCC memberstates ( grouping a KSA and a UAEentity), however we do expect the majorityof member states to adopt local VATgrouping provisions as best practice.

10 RegistrationTaxable transactions07 VAT FAQ | Answering your VAT questionsWhich supplies will be subject tostandard rate?The standard rate of 5% VAT will beapplied across all six of the countries. Thisis expected to apply to substantially all ofthe domestic supplies made in the normalcourse of business. Applicable exemptions and zero rates Various exemptions and zero rates willapply but individual GCC members have a degree of flexibility as to whether tostandard rate, exempt or zero rate. Theseareas broadly include education, realestate, healthcare, financial services, andtransport. The rules released for the UAEand KSA show that member states will takediffering views on exemptions and zero-rates; so it is important that businessesconfirm the final rules in each international services to ataxable customer The place of supply of intra-GCCinternational services (excludingexceptions for services closely connectedto the country of performance or to landand buildings) to a taxable (business)customer will be the location of therecipient of the service, with the recipientin another GCC member state required toreverse-charge local VAT.