What is VAT?

  • VAT is a tax on consumption, not income or profits.
  • The GCC countries have agreed a standard VAT rate of five percent.
  • Goods and services can be exempt, zero-rated or standard-rated (five percent).
  • Registered suppliers will add VAT to the price of a good or service they supply, collect the tax and pay it to the tax authority on a regular basis.
  • Registered businesses should (where the supplies they make are either standard or zero-rated) be able to recover the VAT they have incurred in the course of making those supplies.
  • Registered businesses that make supplies that are exempt from VAT will not be able to recover the VAT they have incurred in the course of making those supplies.
  • Registered businesses that make supplies that are zero-rated will usually be in a refundable position.

Will all businesses be affected by VAT?
With the mandatory VAT registration threshold for businesses in the GCC set at US$100,000 of annual ‘turnover’ (a business must register for VAT if they make taxable supplies or imports that exceed the mandatory registration threshold of US$100,000), VAT will impact almost all businesses operating in the GCC. There will also be a voluntary registration threshold of US$50,000 (a business may choose to register for VAT if their taxable supplies and imports are less than $100,000 but exceed the voluntary threshold of $50,000).

In essence, most supplies of goods and services in the GCC will attract VAT. Businesses will need to:

  • Work out whether the goods or services they supply are subject to VAT at the standard rate, zero rated or exempt from VAT
  • Include the correct amount of VAT in the price of the goods or services they supply
  • Issue ‘tax’ invoices for the supplies they make and obtain ‘tax’ invoices for any purchases they make
  • Account for VAT and put aside all the VAT collected by them from their customers so they can pay it to the relevant tax authority when due
  • Claim VAT input tax credits for VAT included in the price of their businesses purchases
  • Lodge regular (expected to be monthly, bi-monthly or quarterly) VAT returns

What are the key features of the GCC's VAT system?

Registered businesses will need to charge VAT at the standard rate of five percent on all supplies they make unless the zero rate or an exemption applies. The GCC VAT treaty provides flexibility to either standard-rate, zero-rate or exempt supplies of goods and services.  Based on the GCC VAT treaty and the VAT treatment of goods and services in other jurisdictions, we expect:
Certain supplies made by the following sectors may be zero rated or exempt:
  • Education
  • Health
  • Real estate
  • Local transport

Certain supplies made by the following sectors may be zero rated:

  • Oil & gas
  • Certain food products
  • Medicines & medical supplies
  • Intra-GCC transport

With each of the each of the GCC member states having the flexibility to exempt, zero rate or standard rate financial services, it is likely that margin based products will be exempt and where a fixed fee is being charged the standard rate will apply.

The export of goods outside the GCC will be zero rated. 
 
Certain cross-border supplies of services will be zero rated.

Special rules will apply to the cross-border movement of goods within the GCC – in essence, VAT will need to accounted for under the reverse charge mechanism. 

What do key decision makers have to bear in mind?
VAT will impact almost all facets of every business – but will have a particularly marked effect on operations, compliance, finance and IT. As a key decision maker, you need to consider:

How can Keypoint help?

VAT briefs
We have developed a set of sector-focused briefing documents which explain many of the most important challenges that VAT will pose for GCC businesses. Sectors covered include:
  • Automotive
  • Education
  • Financial services
  • Healthcare
  • Hospitality & tourism
  • Insurance
  • Islamic financial services
  • Logistics & transportation
  • Oil & gas
  • Real estate & construction
  • Retail
  • Takaful
  • Telecommunications, media & technology
Keypoint's tax advisory team
The key source of Keypoint’s strength is our people. Our team is committed to quality client service, providing timely and accurate responses and solutions to any given scenario.

Our sector leaders have deep regional and sector experience and have a 'Big 4' background. Combining over 40 years of tax and VAT experience, gained working in Bahrain, across the GCC and in Malaysia, Europe and Australia. Our team has advised businesses and organizations across all industry sectors.

Mubeen Khadir, our Head of Tax, is a corporate and tax lawyer with over 15 years of experience of advising clients in the Middle East and Australia on international tax, VAT and other indirect taxes. With strong ‘Big 4’ and top tier legal firm experience, he recently led an international tax and VAT practice in Bahrain and the Eastern Province. As well as VAT, his key areas of tax expertise are tax structuring and due diligence, Saudi and Bahrain tax, international tax, transfer pricing, tax disputes and Islamic finance.

George Campbell, an associate director, is a UK chartered tax adviser (CTA) and a member of the Chartered Institute of Taxation. He has over 10 years of specialist VAT experience and has advised a wide variety of businesses and organizations on indirect tax, helping to identify efficiencies, ensure compliance and generate savings. Having worked with ‘Big 4’ firms in the UK and across the GCC, George has been working with businesses across the region for the last 12 months on all aspects of VAT implementation. Whilst he has worked with businesses in all industry sectors, he has deep experience in the automotive sector, having led multiple VAT automotive engagements in Saudi Arabia, across the GCC and in the UK.

Mubeen and George are supported by managers, assistant managers and consultants who have advised clients in the Middle East and across the world on international tax, VAT and other indirect taxes. Based in Bahrain with immediate access to other GCC countries, our team members have worked across industrial sectors including financial services, oil & gas, real estate and construction, automotive and healthcare.

With an immediate focus on VAT, our team will help businesses understand the challenges of the imminent VAT implementation, assessing the impact of those challenges, and explaining how systems and processes will need to be changed. This helps to ensure that businesses are compliant with yet-to-be released national legislation, and successfully embed the process, systems, procedures and knowledge required to pay the right amount of VAT at the right time.

By getting this right, businesses are more likely to be able to generate VAT efficiencies and savings and less likely to face damage to either their finances or their reputations.

 

Mubeen Khadir
Head of Tax Consulting
mubeen.khadir@keypoint.com

+973 17206879

+973 3222 6811


George Campbell
Associate Director
george.campbell@keypoint.com

+973 17206872

+973 3833 8641