VAT in GCC key points

Value Added Tax (VAT) – GCC implementation what we know so far based on news and Government notifications.

GCC VAT framework agreement in place.  – Ernst & Young news alert click here

The Key takeaways on what to expect based on information available: Disclaimer – these are expectations based on information available and will only be clarified as and when the requisite legislation’s and laws are published.

What is VAT
VAT is an indirect tax on goods and services collected by intermediaries on behalf of the Government.

Who is impacted:
All persons and entity involved in business for profit. (intermediaries)
All consumers.

Is there a Threshold?
The Threshold is based on annual turnover (in case of new business total expenses)
Exempt for registration  – (USD – <50000 ) (AED. < 187000)
Optional for registration – (USD > 50000<100000)  (AED. >187000 < 375000)
Compulsory registration – (USD > 100000) (AED. > 375000)

How much?
VAT rates proposed are:
Exempt – Residential properties old, Food Stuff  can be expected
Zero Rate – Education, Healthcare, Local transport can be expected
Standard Rate (5%) – All goods and services other than Exempt and Zero Rated.

Goods and services some considerations:
Place of supply rule is expected. which will consider the physical presence of goods when and where sold.
Import of goods is expected to have VAT coverage through reverse charge mechanism. i.e. the buyer accounts for VAT on purchases.
Third port transactions are not expected to have a VAT impact. i.e. when goods are sold from and to a country outside GCC.
Services: It is expected that a test based on where the business is located as against where the services are being consumed will be used to determine VAT applicability
NOTE: For all qualifying businesses even if the activity is illegal, there will be an additional requirement of compliance to VAT requirements.  For e.g. if activities beyond the activity approved for the Trade License is undertaken, then these activities will be subjected to VAT requirements.

It is expected that quarterly summary reports of VAT Input and Output duly segregated Emirate wise will be mandated, the net position is expected to be settled within 28 days of the end of the quarter. The entire process is expected to be online or electronic.

What are the Pre-Requisites:

  • It is expected that proper accounting records are maintained
  • Time of supply rules will help determine when to account for VAT input and output
  • Invoices of purchases and sales are expected to clearly provide VAT registration numbers of the supplier or seller.

Pre-notified audits and penal actions are expected to be included in the law, additionally a  clear appeals process is also considered imminent to settle the disputes that may arise.

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