Tax & Accounting Blog

GCC VAT: Yes, No, Maybe?

Blog, Business Tax, Indirect Tax, Tax, VAT Tax Rates, VAT-GST Management May 26, 2016

The six Gulf Cooperation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have been discussing a VAT implementation for years. With oil prices continuing to be low, VAT could be implemented in these countries to help increase government revenues. Almost all of the tax revenue comes from resource extraction taxes, so an attempt to widen the tax base will help soften the blow of low oil prices which could continue until 2020. This year the member states confirmed they would implement between 2018 and 2019. Also, the VAT would be the first step in imposing more taxes in the future such as corporate income taxes, which are under consideration in Kuwait and United Arab Emirates.

GCC States Implementing VAT 1 January 2018

Implementation dates are often subject to change and could be delayed depending on the ability of the countries to put into place the necessary infrastructure such as tax agencies, which are missing in some of these countries.

GCC States Drafting Laws

  • Kuwait
  • Qatar
  • Bahrain

As noted earlier, the rate will likely be 5% which is well below the global average of VAT rates. The list of exemptions of:

  • Food
  • Medicine
  • Education
  • Financial Services

are fairly common globally. As the United Arab Emirates is a major financial services hub there will at some point need to be detailed regulations on which financial services will be exempted and which will be taxable. Also, if there will be some preset input tax credit rates like in Australia. The most recent Egyptian VAT law allowed an exemption for unprocessed mineral products which could be beneficial in some of these GCC states.

It seems likely that at some point these countries will follow: Australia and New Zealand and implement simplified systems for collecting VAT on B2C electronic services supplies.

More information will come over the next 18 to 24 months to help business prepare especially around tax returns, invoicing and reporting in each of these jurisdictions. It is unlikely these countries will follow the path of Puerto Rico with its roller-coaster VAT implementation and reversal.