The Gulf Cooperation Council (GCC), (an alliance of six Middle Eastern countries- Saudi Arabia, Kuwait, UAE, Qatar, Bahrain and Oman), has implemented VAT and the 6 countries have signed the agreement, paving the way for introduction of VAT throughout the GCC in 2018. The next step is the local implementation of the VAT laws to be agreed in each country.
Out of the 6 countries, only UAE and Saudi Arabia have started implementing VAT, which allows them a boost in their economy via tax revenues, specially when the country has seen a major drop in their oil revenue. To help them sustain the current economy and support future development plans, VAT has been introduced in these countries. The Federal Tax Authorities are presently identifying the challenges for implementing the processes for VAT refund. A lot needs to be done in a short period of time, but these countries are emulating from the EU countries who already have a functional VAT processes in place and so they have a benchmark in place.
Note: Not all GCC members have started the VAT implementation yet. The four remaining GCC member countries- Bahrain, Qatar, Kuwait and Oman, should be implementing VAT, with Bahrain and Oman expected to do so soon. Kuwait recently announced that it will introduce VAT in 2021 and it is still unknown when Qatar will introduce VAT.
Hopefully, the other GCC member countries will draw on the experiences of the UAE and Saudi to handle their early phase challenges. With digitalisation, adding an extra layer to getting their processes in place, the key to their implementation success will lie in simplicity, transparency and harmonisation across all stages.
What does this mean for you?
If you have business activities in UAE, you should begin preparing for VAT compliance at the soonest, if you haven’t done so already. This will help them smoothen the implementation phase. If you fail to register for VAT then you may be subjected to a fine on a daily/ monthly basis. Businesses with operations in the GCC countries impacted by the VAT will represent a fundamental change to their business operations in a region which has little history of taxation.