The six Gulf Cooperation Council ("GCC") member states, Saudi Arabia ("KSA"), Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates ("UAE"), agreed and signed a Framework Agreement for the introduction of Value Added Tax ("VAT") at the end of 2016. The Framework Agreement sets out a unified set of principles for VAT as a means for the individual GCC states to implement VAT legislation domestically allowing each state to exercise its discretion in various areas. The intention was that VAT would be implemented by the GCC states by 1 January 2018, whereas it was stated that countries which do not commence by that date would have until 1 January 2019 to introduce VAT.
On 1 January 2018 both the UAE and KSA became the first of the GCC states to introduce VAT according to the GCC Framework Agreement. Each of these states enacted a VAT Act together with Implementing Regulations which provide much of the detail. It is understood that the remaining four countries (Bahrain, Kuwait, Oman and Qatar) are working towards the introduction of VAT, which in principle should take place on 1 January 2019.
Developments in the other GCC member states
So far, none of the remaining four GCC countries has published the required draft implementing VAT legislation or regulations although certain statements have been made with respect to the forthcoming introduction. After an IMF official recently commented that the four GCC states would need until mid-2019 to prepare for VAT there have been mixed media messages around the introduction dates in these countries. The information we have suggests that
- Bahrain has until recently stated that VAT would be introduced by October 2018, although in February of this year government officials stated introduction has been postponed until the end of 2018.
- Kuwait related reports confirmed that the government is working towards introducing VAT in 2019, despite previous messages suggesting otherwise.
- Oman's Ministry of Finance confirmed in December last year that the VAT introduction would be postponed until 2019.
- Qatar previously indicated it will introduce VAT from 2019 although some recent media reports questioned that timeline.
Businesses in Bahrain, Kuwait, Oman and Qatar would do well to look at their current business models and contractual arrangements to understand how the anticipated VAT introduction in their jurisdiction may affect them. It will be very useful for them to consider the recent experiences and lessons learned by businesses in the UAE and KSA where VAT has been applied for over three months now.
Lessons learnt from UAE and KSA
In both the UAE and KSA, the introduction of VAT has been a swift and dynamic process. The UAE published its final VAT law and regulations in August and November 2017 respectively, where KSA did the same in July and September 2017. From that perspective, the other four GCC states could potentially follow a similar path, although businesses operating in those countries would clearly benefit from a lead time which is as long as possible.
Many businesses registered for the new tax in the UAE and KSA have already filed their first VAT returns, or will do so shortly. Some uncertainties remain around the application of VAT in certain specific situations, although both the UAE and KSA are addressing many of these with additional Q&A information, awareness sessions and sector specific VAT guides. This additional guidance can provide useful information for businesses to anticipate the impact of the introduction of VAT in the other countries.
With the Framework Agreement in place and the experience that can be derived from the VAT laws and regulations in both the UAE and KSA, introducing the relevant legislation domestically from 1 January 2019 in the other countries should be feasible from a technical perspective. Although the question still remains when the countries will practically come out with the new VAT law and regulations, businesses in the relevant jurisdictions are advised to already start preparing for it
Please contact the authors for more information or assistance on VAT in the GCC member states.
- Ton van Doremalen
- Richard Woolich
- Daan Arends
- Bjőrn Enders