United Arab Emirates: GCC Releases VAT Framework

Last Updated: 21 July 2017
Article by Ashok Hariharan, Clare McColl and Rob Dalla Costa

The text of the GCC unified agreement for value added tax (VAT) has been published (in Arabic) by the Kingdom of Saudi Arabia.

Which countries make up the GCC?

  • The United Arab Emirates
  • The Kingdom of Bahrain
  • The Kingdom of Saudi Arabia
  • The Sultanate of Oman
  • The State of Qatar
  • The State of Kuwait

What is VAT?

VAT is a tax on the consumption of goods and services. It is charged and collected by a taxable person and remitted to the tax authority. A taxable person is a person, persons or entity that carries out an economic activity that requires them to be registered for VAT.

Why is the unified agreement important?

The unified agreement sets out the framework under which VAT can be implemented in each of the GCC member states. The framework includes agreement on certain matters but allows member states discretion on how to treat others.

Once the agreement is ratified, each member state can interpret the framework into its own local law and implement VAT. Some member states, notably the United Arab Emirates and the Kingdom of Saudi Arabia, have indicated an intention to implement VAT with effect from 1 January 2018. The framework allows for a basic rate of VAT of five percent as well as allowing for certain supplies of goods and services to be zero-rated or VAT exempt.

Who will the law apply to?

VAT will ultimately impact every business that supplies goods or services in the GCC. Businesses that make taxable supplies over the mandatory threshold must register with the relevant tax authority for the member state. There is scope for voluntary registrations. VAT registration requirements will also apply to non-resident entities. Additionally, there is scope to register multiple entities as a single VAT group, subject to conditions set out in the local laws.

What does the VAT framework cover?

The VAT framework comprises 15 chapters and 78 articles.

These include:

  • Definitions and general principles, including scope
  • Supplies within scope, including supplies of goods and services and deemed supplies
  • Place of supply of goods and services, including special cases
  • Importation
  • Due dates and calculation of taxable values
  • Provision for exempt and zero-rate supplies
  • Liability to pay VAT
  • Input tax credits and VAT refunds
  • VAT registration obligations
  • Tax invoices and the record retention requirements
  • VAT return completions and filing requirements
  • Settlements or refunds
  • Intra-GCC arrangements

What is the place of supply?

The place of supply determines where a supply takes place and therefore which member state's local VAT law is relevant.

The place of supply of goods is typically where they are placed at the disposal of the customer. The place of supply of goods provided with transport is the place where the transport starts. However, there are special rules that affect the place of supply for certain intra-GCC supplies of goods where the supply is to a VAT-registered entity in another member state.

The place of supply of services is the place where the supplier is resident. However, the place of supply of services provided to a taxable customer shifts to where the customer is resident.

There are special provisions for the place of supply of oil, gas, water and electricity, hiring means of transport, transport services for goods and passengers, services to real estate properties, the supply of telecommunication and electronically-provided services and supplies by restaurants, leisure and cultural facilities and sporting events.

What are taxable supplies?

Taxable supplies include all goods and services subject to either the basic VAT rate of five percent or the zero rate, including:

  • All goods and services (sales, transfers of ownership, disposals, leases, rentals and construction) used in business
  • Transfers of goods and services from and to other GCC countries
  • Transfers of goods and services from and to the rest of the world
  • Deemed supplies
  • The importation of goods and most services

What could be VAT zero-rated?

Zero-rated supplies include:

  • Medicines and medical supplies (a common list will be proposed by the committee of Health Ministers and endorsed by the Financial and Economic Cooperation Committee)
  • Certain foodstuffs (a common list will be ratified across the GCC by the Financial and Economic Cooperation Committee)
  • The oil sector and the oil and gas derivatives sector (at the discretion of each member state)
  • International and intra-GCC transport
  • Means of transport (at the discretion of each member state)
  • Supply outside the GCC (for example, exports)
  • Supply of precious metals for investment (gold, silver and platinum)

Additionally, each member state can zero rate or VAT-exempt:

  1. The educational sector
  2. The medical sector
  3. The real estate sector
  4. The local transport sector

What could be VAT-exempt?

Financial services performed by authorized banks and financial institutions will be VAT-exempt. Banks and financial institutions will have the right to a refund of input tax, based on refund rates determined at the discretion of each state. Each member state has the discretion to apply other tax treatments to the financial services sector.

The international practise in many VAT jurisdictions is to treat the education and medical sectors, the leasing of residential property and local transport as VAT exempt. However, this has been left to the discretion of each member state.

What are the consequences of making something VAT-exempt or zero-rated?

A VAT rate of zero is still a rate of tax and a taxable supply. A supplier of zero-rated goods or services is entitled to a credit for the VAT incurred on his or her costs. In sharp contrast, VAT exempt is not a rate of tax and not a taxable supply. As a consequence, suppliers of VAT-exempt supplies cannot claim credits on the VAT incurred on their costs. This will result in higher costs for VAT-exempt suppliers.

Will there be special treatment of VAT for specific categories or persons?

The framework agreement allows discretion for member states to provide special VAT treatments to certain categories of person, applying exemptions or refunds on tax incurred supplying:

  • Government organizations
  • Charitable organizations and public utility establishments
  • Companies hosting international events (exempted by agreements)
  • Citizens of a member state building their homes for personal use
  • Farmers and ¬fishermen not registered for VAT

What are imports and exports?

Imports are goods entering a GCC member state from outside the GCC. VAT is typically due on the importation of goods, however, there are special rules regarding, for example, the valuation of imported goods and goods under suspension.

Exports are goods leaving from the GCC. Exports are typically zero-rated but subject to certain conditions.

When is VAT charged? What is the time of supply?

Generally, the time of supply for VAT purposes is the earlier of the date of:

  • The supply of goods or services
  • The issue of a tax invoice
  • Receipt of a partial or full consideration

Who can deduct VAT?

A taxable person can deduct VAT incurred in carrying out taxable supplies from the VAT due on those taxable supplies. Evidence of VAT paid, typically a tax invoice, is essential. Each member state will adopt its own conditions for VAT deduction. For example, the UAE has suggested that VAT recovery for certain entertainment expenses maybe denied.

What happens next?

The framework provides sufficient information to begin planning for VAT, with introduction in some member states just months away. Local laws are likely to follow in the few months. Businesses should be planning and preparing now.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.