The Saudi VAT law has now been ratified. GAZT has released its calendar of VAT deadlines moving towards the 1 January implementation date. The Saudi implementing regulations have been finalised. The UAE has released its federal decree on VAT. Implementing regulations are expected imminently. Key decision makers should now be more aware than ever that we are entering into a new tax era. Businesses in the UAE and Saudi Arabia now have less than 75 working days to prepare for the implementation of VAT.

 

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.

How will VAT affect the oil & gas sector?

 

  • The Saudi IRs are silent on relief for the oil & gas sector, meaning supplies will be taxable and input taxes should be fully recoverable.
  • Long-term contracts that span VAT’s introduction will need to be reviewed to ensure VAT can be passed on to the customer.
  • Timing of VAT accounting could significantly impact cash flow. Typically, VAT is accounted for at the earlier of the supply being made or invoice date – so VAT may be payable a long time before payments are collected.
  • Subject to certain conditions, supplies made under contracts that span implementation (1 January 2018 for the UAE and Saudi Arabia) may be zero rated until the earlier of the expiry of the contract or 31 December 2022.
  • Consistent with general VAT principles, exports will be zero-rated which means that, while VAT is not charged on exported supplies, it is recoverable on purchases. However, cash flow will still be significantly affected. VAT refunds are likely to be the single biggest issue for oil & gas businesses as a large proportion of their sales are likely to be exports.
  • VAT incurred on capital expenditure will also significantly impact cash flow. Large-scale capital expenditure is often incurred at the early stages of an oil & gas project while supplies -and so income flow -are likely to occur some years later. Business may be left waiting for VAT refunds.


 

 

 

 

 

 

 

 

 


What should oil & gas companies be doing now?
  • Review long-term supply contracts.
  • Consider the impact of place of supply rules on offshore drilling and production activities.
  • Examine the impact of VAT incurred on imports on cash-flow -particularly if an exporter in a refund position.
Important note
These briefs are based on a translation of Saudi Arabia’s VAT legislation, the UAE federal law, the Saudi implementing regulations and general VAT principles and are provided for information purposes only. Saudi Arabia and the UAE continue – as of the date of release of this brief – to work towards an implementation date of 1 January 2018. This brief is not a substitute for professional advice. You should seek appropriate professional advice from a tax advisor before making any decision relating to your particular circumstances.

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