GCC Indirect Tax developments
The United Arab Emirates and the Kingdom of Saudi Arabia have introduced Value Added Tax (VAT) at a standard rate of 5 percent with a few goods and services zero-rated and exempted in order to move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Here are some highlights of the recent GCC Indirect Tax developments.
United Arab Emirates
The introduction of VAT was a landmark event, but what have we learned in the first 100 days and what might we expect going forward?
- Importance of a post implementation VAT health check
- Dealing with VAT as part of the project structure
- How to be VAT compliant
- Ensure VAT is considered when restructuring your business
- VAT treatment for transactions with other GCC member states
The UAE FTA has published Issue 2 of its Taxable Person Guide for Value Added Tax. This guide is the main reference guide to VAT in the UAE. It covers a broad range of topics including an introduction to VAT, registration, taxable supplies, zero-rated and exempt supplies, place of supply, date of supply, import of goods, VAT recovery, returns and payments, tax invoices, record keeping, account management and FTA compliance checks.
FTA UAE releases video clips on how to file VAT returns. The videos explain how to fill out the Tax Return form box by box with data about sales and other outputs, as well as expenses and other inputs.
Video 1: How to Open the VAT Return and Getting Started.
Video 2: VAT on Sales and All Other Outputs – Box 1
Video 3: VAT on Sales and All Other Outputs – Box 2 to 5
Video 4: VAT on Sales and All Other Outputs – Box 6 to 8
Video 5: VAT on Expenses and All Other Inputs – Box 9
Video 6: VAT on Expenses and All Other Inputs – Box 10 to 14
Video 7: Submitting the VAT Return
Video 8: How to Pay the VAT Liability
UAE FTA publishes Cabinet Decision No. (26) of 2018 on the Refund of Value Added Tax Paid on Services Provided in Exhibitions and Conferences
As per the user guide, suppliers of certain services are able to claim a refund of the amount of VAT which they charge on supplies of these services to their international customers. There are a number of conditions which have to be met for the ability to reclaim the VAT to arise, including that the supplier should not collect the VAT component from the relevant international customers. The effect of these rules is that the international customers will not bear the cost of VAT when acquiring qualifying exhibition and conference services.
The services which fall under this refund scheme are the services of:
- granting the right to occupy space for the purposes of conducting an exhibition or conference; and
- granting the right to access, attend or participate in an exhibition or conference.
The following conditions must be met for the supplier to be able to claim the refund from the FTA:
- The supply is of Exhibition and Conference Services – that is, either of the grant of the right to access, attend or participate in an Exhibition or Conference or the grant of the right to occupy space for the purposes of conducting an Exhibition or Conference.
- The recipient of the Exhibition and Conference Services does not have a Place of Establishment or a Fixed Establishment in the State.
- The recipient of the Exhibition and Conference Services is not registered for VAT or required to register for VAT in the UAE.
- The Supplier has obtained a written declaration from the recipient confirming that the recipient does not have a Place of Establishment or a Fixed Establishment in the UAE, and is not registered or required to register for VAT in the UAE.
- The recipient of the Exhibition and Conference Services has not paid the amount of VAT to the Supplier.
Declaration by Registered Recipient of Gold and Diamond - In accordance with Cabinet Decision No. (25) of 2018 On the Mechanism of Applying VAT on Gold and Diamonds between Registrants in the State, where the supplier supplies the product to a tax registered recipient who intends to resell the product, or use it to manufacture the product, the supplier may not be liable for VAT. The recipient must account for the VAT due via the reverse charge mechanism and submit this declaration.
The UAE FTA has issued updated versions of the VAT and Excise guides
CBUAE Announces: New Caps on Banking Fees for Customers
The UAE Central Bank (CBUAE) announced on the 18th of June 2018 that it has published an amendment to ‘Annexure 2’ of the Regulations Regarding Bank Loans & Services Offered to Individual Customers (2011). Fee caps are used to protect the consumers from the anti-competitive and unfair practice, all the banks will be able to amend their price only based on an increase in costs. CBUAE provided instructions to the banks and all the companies in the financial services to display the new fee caps on their websites. To ensure the protection of consumers the bank fees will be reviewed annually, the banks will need to notice and seek approval from CBUAE (prior) any introduction of new fee or a change in the current fees larger than 5%. Banks must notify and request CBUAE approval for these additions or changes during the first five days of April or October of each year.
This decision has been issued as an amendment to the circular issues on 28 December 2017 by the CBUAE which imposed that the banks and finance companies must absorb the applicable VAT until further instructions from the Central Bank. Similarly, any applicable VAT on the services provided by the Central Bank was to be absorbed by the Central Bank. CBUAE has amended the above mentioned circular with this annexure which outlines the fee caps and effectually makes the fee caps exclusive of VAT, then enabling banks to change the VAT amount in addition to any prescribed capped amounts.
Kingdom of Saudi Arabia
General Authority for Zakat and Tax issues VAT violations against foodstuff vendors
The violations mostly consisted of not using the standard approved VAT invoice, which must include the business’ VAT registration number, not displaying the VAT registration certificate and not including the business’ address in the invoice.
Bahrain and Qatar
In 2016, all six Gulf Cooperation Council (GCC) countries signed a unified agreement for the introduction of VAT – “the VAT Framework Agreement”, which sets out how countries will implement the 5% tax on goods and services.
VAT is expected to be introduced in Bahrain and Qatar by 2019. Given that the final date of VAT implementation in Qatar is 1 January 2019, as set out in the VAT Framework Agreement, it is expected that the Government will announce the official introduction of VAT during the second half of 2018, (as detailed in a recent IMF report).
The first step businesses must make is to plan and analyze their products and services for the impact of VAT, as many businesses have begun to do. VAT implementation is a reality for Bahrain and Qatar, and to maintain profitability and avoid VAT leakage, companies should invest in understanding the impact of VAT on their business from an operational point of view.
VAT is likely to impact all businesses in Bahrain and Qatar, either directly or indirectly, but it will have a neutral impact if managed effectively. Therefore, companies should review their procurement processes, operating models and systems, contracts and legal structure today, to be VAT ready and minimize the impact of this imminent change.