20 May 2022
The six Gulf Cooperation Council (GCC) countries namely United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), Bahrain, Oman, Qatar and Kuwait signed the GCC Value Added Tax (VAT) Framework Agreement in June 2016. Then back in 2018, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) became the first two countries to introduce Value Added Tax (VAT) at a standard rate of 5%. Then in January 2019, Bahrain became the third GCC member state to introduce the VAT.
VAT- Introduction in GCC Countries:
No doubt that oil and gas were the two significant commodities helps to the growth and development of GCC countries for the last few decades. However, with Brent crude oil price falling in the global market it has been a sage and sustainable move for these GCC countries to diversify from their dependence on their sources of revenue. Hence, the GCC countries started looking for other sources of income such as tourism and other business-related revenue streams. The introduction of VAT, an indirect tax was another measure to generate income for the government. Vat is a consumption tax imposed on a product at every stage of production to its final purchase by a consumer.
VAT in the United Arab Emirates:
The Value Added Tax (VAT) introduced in the United Arab Emirates was on January 1, 2018. This was implemented as a source of income for the country. Value Added Tax also known as consumption tax, is an indirect tax imposed on most goods and services sold or purchased. The standard VAT rate in UAE is 5% and the Federal Tax Authority has the responsibility to conduct audits and implement and ensure the collection of the tax in the country. Companies, consumers of non-essential commodities, residential tenants, homebuyers, home sellers, importers or re-exporters will be taxed under the Federal Tax Authority.
VAT registration for businesses:
According to the UAE government, the VAT applies to those businesses operating that meet certain conditions under the UAE VAT law. The conditions are as follows:
- Businesses that have a yearly turnover exceeding AED 375,000 on taxable imports and supplies are to be registered for VAT,
- Businesses with a yearly turnover above AED 187.500 and under AED 375,000 can register for VAT.
At the end of each tax period, the tax-registered businesses must submit a VAT return to the Federal Tax Authority.
Taxable businesses have to file VAT returns within 28 days of the tax period with the Federal Tax Authority. And the tax periods are organized as:
- On monthly basis for businesses having annual revenue of AED 150 million or more,
- On a quarterly basis, businesses have annual revenue below 150 million.
As per the Federal Tax Authority guidelines, certain sectors are exempted from VAT. They are:
- Bared land,
- Local passenger transport including flights within the UAE,
- Sale or rent of residential property after the first supply,
- Supply of certain financial services
It would be insightful to know that UAE has one of the lowest VAT in the world. And there are certain consequences that arise for Non-Compliance with Value Added Tax in the UAE.
VAT in the Kingdom of Saudi Arabia:
The tough post-Covid situation compelled the Kingdom of Saudi Arabia to triple the VAT from 5% to 15%. As we know, the Kingdom of Saudi Arabia implemented the VAT system along with the United Arab Emirates back in 2018. This hike in the VAT was a part of tax measures taken to support the economy of the country during the Covid-19 crisis. Article 25 stipulates the VAT rate under the GCC VAT Framework Agreement and is not determined by any local law or regulations. An increased VAT rate must be announced at least six months before its implementation and the same has to be agreed upon by the GCC countries.
General Authority of Zakat and Tax (GAZT) is the authority in charge of the implementation and administration of VAT in the Kingdom of Saudi Arabia. The GAZT has the authority to field visits, undertake audits and also have the power to levy penalties for non-compliance with legal provisions relating to VAT.
VAT registration for businesses:
All businesses exceeding revenue of 375,000 SAR through taxable sales in the past or expected taxable sales in the future 12 months must register, collect tax and must file returns for VAT. VAT registration is optional to those businesses with revenue exceeding 375,000 SAR but makes only zero-rated supply. Some businesses can choose not to register for VAT if their revenue through taxable sales in the past 12 months or expected taxable sale in the next 12 months is between 187,500 SAR – 375,000 SAR.
All supplies of goods and services made in the Kingdom of Saudi Arabia are entitled to the standard rate of VAT at 15% unless they are marked as zero-rated or exempted. Food and beverages, local transportation, rent and sale of commercial buildings, private health care and educational services, and sale of residential buildings are some examples of standard-rated supplies. Goods and services specified as exempt are not subject to VAT. And such suppliers should not register for VAT, collect a tax or remit it. Residential rent and certain financial services are examples of exempted goods and services. Non-GCC exports, international transport, medicines and medical goods, and investment metals like gold, silver, platinum etc. are examples of zero-rated supplies taxed VAT rate at 0%.
Value Added Tax in Bahrain:
Bahrain is the third GCC country after the United Arab Emirates and the Kingdom of Saudi Arabia to implement VAT. The standard VAT rate of 5% applies to almost all goods and services barring a few which are subjected to be exempted from VAT and which are subjected to zero rates. According to the media reports Bahrain is planning to double its VAT to 10% with an aim to boost its revenue. Basic food items, education, preventive and basic health care services, import or supply of medicines and medical equipment, supply and import of investment metals like gold, silver platinum, peals and gemstone, construction of the building, local transportation sector, oil and gas sectors etc. are some examples for the zero-rated supplies in Bahrain. Some tax exempted supplies include financial services without commissions, explicit fees or commercial discounts charged by any financial institutions, and lease or sale of bare lands or buildings.
In the Kingdom of Bahrain, the National Bureau for Revenue (NBR) is the authority responsible for the implementation and registration of VAT. The National Bureau for Revenue is also responsible for the payment of refunds, collection of due amounts, validation of VAT return filing and related assessment, auditing and processing of any appeal, and monitoring and enforcement compliance.
Investors who set up a business establishment in Bahrain which performs economic activities must register for VAT. There are cases where the VAT registration is mandatory and cases where the VAT registration can be applied on a voluntary basis.
Companies meet mandatory registration when their annual supplies during the previous 12 months exceed BHD 37,500 or are expected to exceed BHD 37,500 in the next 12 months. Company supplies that do not exceed the mandatory registration thresholds are not required to register VAT in Bahrain. But they can still register for VAT on a voluntary basis if their number of annual supplies exceeds BHD 18,750 in the previous year or is expected to exceed BDH 18,750 in the next 12 months.
Value Added Tax in Oman:
On April 16, 2021, Oman has implemented its new VAT system. Oman is the fourth GCC country to implement VAT under GCC VAT Agreement. The scope of VAT in Oman is very wide and is likely to apply to most goods and services. Like other GCC countries Oman also broadly categorized VAT into standard rate, zero-rate and exempt rate.
A standard rate of 5% of VAT is imposed on all goods and services bought, sold or imported into the Sultanate of Oman. Zero-rated supplies are taxable supplies at 0% VAT. Supply of certain food products, specified medicines and medical equipment, investment metals like gold, silver and platinum, supply of oil and natural gases etc. are some examples of zero-rated VAT. Financial services, educational services, healthcare services, bare land, rent and resale of residential property, local passenger transport etc. are examples of exempted VAT. All goods and services except mentioned above will attract VAT at the standard rate of 5%.
VAT registration is mandatory if the total value of supplies made at the end or expected to be made at the end of the month, in addition to immediately preceding 11 months, exceeds OMR 38,500. If the total value of supplies made at the end or expected to be made at the end of a month, in addition to the immediately preceding 11 months, exceeds OMR 19,250, a voluntary VAT registration can be applied.
Businesses failing to register or provide any incorrect information shall face prison between 1 and 3 years and will also be liable to pay a maximum of OMR 20,000. Businesses that fail to submit the VAT return within the required period shall be imprisoned between 2 months and 1 year and also be liable to pay a maximum of OMR 10,000.
Value Added Tax in Qatar:
Currently, Qatar has not introduced the VAT or sales tax on operations in QATAR. However, the implementation of VAT under the GCC framework is expected to be introduced in the near future in Qatar. As per the GCC countries´ agreement the standard rate of VAT will be 5%. There are no property taxes, stamp taxes or transfer taxes in Qatar. Customs duties and Excise taxes are already introduced in Qatar
Value Added Tax in Kuwait:
Like Qatar, Kuwait has also not imposed VAT on its territory. National Labour Support Tax, Corporate Tax, Capital Gains Tax, and Customs duty are the tax system that prevails in Kuwait. Zakat is another system imposed on all publicly traded and closed shareholding companies in Kuwait at a standard rate of 1% of the company’s net profit. There is no stamp duty or property transfer tax in Kuwait.