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Value Added Tax

Gulf Cooperation Council VAT Agreement

Gulf Cooperation Council GCC VAT Agreement

The signatory to the Gulf Cooperation Council VAT Agreement is a milestone encouraged by the Authorities of engaging in a process of integrating the VAT in the member countries of the GCC. Consequently, this article will discuss on some of the provisions of unified VAT Agreement GCC together with the way that it is applied in the countries in the gulf Cooperation Council. If you need any help related to VAT structures being followed in these countries then you can always consult the tax experts available at VAT registration UAE, a tax consultancy firm in the UAE

GCC VAT Framework

VAT in the six GCC member states is governed uniformly by a single code known as the GCC VAT framework. Important Elements of the GCC VAT Structure: 

  • Standardized VAT Rate: There is a normal VAT rate of 5% that applies to most of the purchased and supplied goods and services.
  • Zero-Rated and Exempt Supplies: Some of the products and services, including export goods and essentials, come under the fully recoverable list or are VAT zero-rated.
  • VAT Registration Threshold: Any business that earns a specified amount of money is supposed to register for VAT.
  • Reverse Charge Mechanism: There are situations when VAT is reported by the recipient of goods or services, as a general rule.
  • Input Tax Credit: The excess of output tax that must be paid to the government treasury is known as VAT and businesses are allowed to deduct input tax on VAT charged on acquired goods.
  • Cross-Border Transactions: The principles guiding the GCC member states regarding cross border transactions are provided for in the current policy.

VAT Implementation in GCC Countries

One important development in recent years has been the introduction of VAT in the GCC countries. VAT implementation in each GCC country has been detailed out as follows:

UAE: United Arab Emirates

  • Implementation date: 1 January 2018
  • 5% is the standard VAT rate.
  • Among all the GCC nations, The United Arab Emirates was among the first to adopt a VAT system. VAT management in the UAE is overseen by the Federal Tax Authority (FTA) currently in charge of collecting value added taxes. Starting from the 1st of July 2018, a business with a turnover of more than AED 375,000 is compelled by the law to be VAT registration.

Saudi Arabia

  • VAT implementation date: 1 January 2018
  • Standard VAT rate:15%, in 2020 it was 5% VAT is another tax type in Saudi Arabia, and as explained it is also administrated by the GAZT as well. The VAT for instance has been raised to 15%, 2020 for instance in effort to diversify the sources of revenue.

Bahrain

  • VAT was implemented from: 1 January 2019
  • The Bahrain current VAT rate is 10%. It was increase from 5% in the year 2022.
  • The collection of VAT is under the National Bureau for Revenue (NBR). The increase was to the standard rate of 10% in 2022 in a bid to fit the local trends.

Oman

  • VAT was implemented from: 16 April 2021 5% is the standard VAT rate.
  • The administration of VAT is under Oman Authority for Public Procurement (OAPP). Oman was the fourth nation to implement VAT.

Qatar and Kuwait:

  • The two GCC countries that have delayed implementation of VAT involve Several factors that have led to the postponement include; state of the economy and the government agenda.

VAT Compliance in the Gulf Region

For businesses to run efficiently in the GCC, VAT compliance is essential. Important elements of compliance include: 

  • Registration: the companies who cross the mandatory threshold amount in revenue are required to register for VAT
  • Record-Keeping: It is essential to maintain the transaction records as per the set standards.
  • VAT Returns: It’s critical to file VAT returns on time.
  • Making a claim for an input tax credit on qualified purchases.
  • Transactions across borders: recognizing and abiding by cross-border supply regulations.
  • Seek Professional Advice: Consult with tax advisors.
  • To guarantee adherence, companies ought to:
    • Designate a VAT Expert: Consult a professional.
    • Make a Technology Investment: Use software that complies with VAT.
    • Keep Up: Keep track of regulatory changes.

Thus, companies can avoid the most obvious problems associated with implementing and applying VAT in the member countries of the GCC. 

VAT Agreement of GCC: Implementing the Choice

  • According to Article (78), this agreement shall take effect after being ratified by the member nations and authorized by the GCC in line with their respective constitutional processes.
  • After the member state deposits its second ratification document with the Council’s General Secretariat, the agreement will come into effect.
  • To implement the Convention’s policies, procedures, and provisions, each nation issues domestic legislation through internal processes.
  • Until the date on which its domestic law takes effect, each Member State is not covered by this Agreement.

FAQs: Gulf Cooperation Council VAT Agreement

1. How does the GCC VAT Agreement impact member states?

Member states have been greatly impacted by the GCC VAT Agreement. It has boosted economic growth, raised government revenue, and established a uniform tax structure. However, issues like rising compliance costs and possible price hikes must be resolved. GCC nations can benefit from a more sustainable and diverse economy by successfully putting the VAT system into place and keeping ensuring the same is implemented effectively.

2. What are the VAT rates under the GCC VAT Agreement?

For the majority of products and services, the typical VAT rate under the GCC VAT Agreement is 5%. Nonetheless, some nations have changed their rates. The GCC countries VAT rates are as follows:

  • Saudi Arabia: 15%
  • 10% in Bahrain
  • Oman and the UAE: 5%

It’s crucial to remember that tax rates might fluctuate over time and that certain products and services might be exempt or zero-rated.

3. Is VAT mandatory in all GCC countries?

  • No, not every GCC nation requires VAT. Although VAT has been adopted in the majority of GCC nations, some, like Kuwait and Qatar, have postponed its implementation.
  • Businesses that generate more than a certain amount of revenue are required to pay VAT in nations that have enacted it. Each nation has a different threshold.

4. What is the process for VAT registration GCC under the GCC VAT framework?

For companies doing business in the GCC, registering for VAT is an essential step. Usually, the procedure entails:

  • Online Application: Using the online portal of the appropriate tax authorities to submit an application.
  • Submission of Documents: supplying required records, such as financial statements, trade permits, and identification documents.
  • Verification Procedure: The information submitted is checked by the tax authority.
  • Tax Registration Number (TRN) Issuance: The tax authorities issue a distinct TRN following a successful verification process.

To prevent fines and guarantee adherence to VAT laws, timely registration is crucial.

VAT Registration UAE will guide you in understanding different provisions of the GCC VAT Agreement

For the companies in GCC VAT regime, obtaining vat registration in UAE is a mandatory affair. VAT also ensures compliance to local tax laws, recover input tax credits as well as maintain accurate account books for businesses. GCC firms should register for VAT so that it will be easier for them to navigate the complex structures of the new system and understand how it can affect them if they engage in cross-border sales. Any business can perform their VAT obligations to the greatest extent and scale up operations in the GCC market if they consult with specialists and are aware of the newest guidelines. Call the tax experts for VAT registration UAE today to get your business GCC VAT ready today. 

Also Read: VAT Government Contracts UAE