United Arab Emirates: VAT In The UAE And Saudi Arabia - The Impact On IP Owners

Last Updated: 27 December 2017
Article by Rob Deans and Adrian Low

With Value added tax (VAT) set to be introduced in the UAE and Saudi Arabia, this guide summarises the circumstances in which we will, and will not, be required to charge VAT to our clients.

In summary, under this new framework:

  • we will charge VAT for our work on intellectual property (IP) related matters in the UAE and Saudi Arabia, with effect from 1 January 2018;
  • VAT for clients located outside the Gulf Cooperation Council (GCC) states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE will be 'zero-rated' (ie charged at 0%);
  • VAT for clients located within the GCC states may be zero-rated or charged at a standard rate of 5%, depending on whether the work relates to a matter in the UAE or Saudi Arabia;
  • clients located within the UAE's many free-zones will be charged VAT in the same way as businesses located 'onshore' in the UAE;
  • we will not be issuing invoices before 1 January 2018 for work to be carried out in 2018; and
  • invoices from 2017 which are not paid before 1 January 2018, will not result in VAT being applied

The basics

VAT is a consumption tax. VAT will apply in relation to the supply of goods and services (including legal services) in the UAE and Saudi Arabia with effect from 1 January 2018.

The standard rate for VAT will be 5%. However, in some circumstances, VAT will be zero-rated.

Businesses outside the GCC states

The VAT legislation in both the UAE and Saudi Arabia requires VAT charged on services provided to businesses located outside the GCC states to be zero-rated (ie charged at 0%). This is because the services will be considered to be exported.

Accordingly, a business located outside the GCC area will not ordinarily be required to pay VAT in respect of legal services on IP-related matters in the UAE, including the registration of IP rights (such as trade marks and patents).

Businesses within the GCC states

The legislation in each of the UAE and Saudi Arabia differs slightly with regard to the charging of VAT to businesses located within the GCC states.

  • The position in Saudi Arabia

For Saudi Arabia, VAT is to be charged at the standard rate to businesses located in any of the GCC states. Accordingly, a business located in a GCC state will be required to pay VAT at the standard rate of 5% in relation to legal services provided in Saudi Arabia (including legal services on IP-related matters).

  • The position in the UAE

For the UAE, VAT is to be charged at the standard rate to businesses located in an "Implementing State". The term "Implementing State" refers to any GCC state which has implemented a VAT law.

Currently, only the UAE and Saudi Arabia have implemented a VAT law. Accordingly, as it stands, a business located in the UAE or Saudi Arabia will be required to pay VAT at the standard rate of 5% on the receipt of legal services provided in the UAE (including legal services on IP-related matters). Importantly for those businesses located within the UAE's many free zones, they are liable to pay VAT in the same way businesses located 'onshore' in the UAE.

In contrast, businesses located in Bahrain, Kuwait, Oman or Qatar (where a VAT law has not yet been implemented) will not, as it stands, be required to pay VAT. This is because the services will be considered to be exported and, in these circumstances, the services will be zero-rated.

Summary of applicable VAT rates

When does VAT become payable?

VAT will be payable in relation to the provision of legal services provided on or after 1 January 2018. The 'tax point' (ie the date upon which VAT becomes payable) will then depend on the date on which the services are supplied. In the UAE, this date will be deemed to be the earliest of (i) the date of completion of the services, (ii) the date of the VAT invoice for the services, or (iii) the payment date.

However, the transitional provisions within the UAE legislation do not allow for VAT to be avoided by issuing and paying an invoice prior to 1 January 2018 for services to be provided on after 1 January 2018. In summary:

  • the issuing and/or paying of an invoice prior to 1 January 2018 for services to be performed on or after 1 January 2018 will not avoid the payment of VAT. VAT will still be payable on the basis that the services are provided after the implementation of the new legislation; and
  • VAT will not be payable on an invoice issued prior to 1 January 2018 for services supplied before this date, even if the invoice is not paid until on or after 1 January 2018.

The position in Saudi Arabia is broadly the same, such that (i) we will not be issuing invoices prior to 1 January 2018 for work to be carried out in 2018, and (ii) unpaid invoices from 2017 will not result in VAT being applied.

The legislative framework and the other GCC states

The introduction of VAT in the UAE and Saudi Arabia follows a Unified Agreement on VAT for the GCC Countries which was issued November 2016. As a consequence of this Agreement, both the UAE and Saudi Arabia have implemented VAT laws and accompanying regulations which will come into effect on 1 January 2018.

However, as yet, none of the other GCC states has implemented any VAT legislation. Accordingly, as it stands, legal services provided in the other GCC states of Bahrain, Kuwait, Oman or Qatar will not be subject VAT.

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.

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