VAT to be Introduced in the GCC
Companies within the Gulf Cooperation Council (GCC) counties must begin to prepare for the introduction of the VAT/GST and excise tax systems as the implementation dates draw nearer.
Although there are still unresolved issues concerning the specific tax machines, companies in the GCC and the Middle East need to start preparing so that they will be ready once the new tax systems take effect.
"The recruitment of VAT specialists should be an extremely high priority for businesses that are affected by this ruling in the region” warns Kingpin International’s Co-founder and Director Alister O’Connor.
"VAT has become a much more important issue for Corporations that operate in multiple jurisdictions and so naturally the demand for specialist skills in this area has risen significantly. In that respect, I would certainly encourage all of my clients to start the recruitment process now so they can take a good look at the market in order to secure the best talent out there.”
The Finance Ministers of GCC member states met during an extraordinary meeting on June 16th 2016 in Jeddah to approve in principle the treaties, which will pave the way for the collection of excise tax and VAT on 1st January 2017 and 1st of January 2018, respectively. The common treaties are expected to be announced in the last quarter of 2016.
Companies are advised to start creating awareness and increasing knowledge throughout their organisation, as well as beginning to assess the potential impact of the new taxes on their business, including the effect on margins and cash flows. Corporations also need to look into tax compliant strategies to “ensure a smooth transition.”
The introduction of VAT and excise tax constitute an important policy reform aiming to help GCC Governments achieve medium to long-term social and economic policy goals and reduce reliance on hydrocarbon revenues. Approval of the treaties is an important development as it sets out common principles that will guide the application of VAT and excise tax at a national level by each individual member state.
It is advisable that companies keep updated on the tax developments and include the Corporate Tax and VAT changes in their business plans. Internal communication and attentiveness are also important since the introduction of the VAT and Corporate Tax will influence other areas of a company like their legal, finance and IT departments as well as overall business strategy.
For now, the GCC states are anticipated to apply a VAT rate of 5 percent across the region. VAT registered companies will be required to comply with a number of tax obligations, including the keeping of VAT books and records for a specific period of time, issuing of VAT invoices for their supplies and reporting of all VAT on sales and purchases, among others.
The system will be based on a destination principle according to which VAT is charged at import and on local supplies of goods and services, and exports are zero-rated. Registered businesses will be required to charge VAT on their supplies, and will be entitled to deduct VAT incurred on their purchases, including capital assets and imports. The VAT treaty will determine how and where intra-GCC transactions are taxed.
Meanwhile, excise tax, a single-phased tax, will be levied once at import or at production stage within the country. It will be collected by businesses on behalf of the tax authority. Business subject to excise tax will be required to, among others: register with the tax authority, keep excise tax records, submit periodical tax returns and keep customers and transport documents.
Similarly to VAT, the excise tax treaty will determine the treatment of intra-GCC movement of excisable goods, which should be taxed in the place of consumption.
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