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Earlier this month, the Saudi Arabian Government
approved the Unified Agreement for Value Added Tax
("Unified Agreement").
The Unified Agreement is an overarching agreement that will
be concluded by all six nations in the Gulf Cooperation Council
("GCC").
The purpose of the Unified Agreement is to ensure that VAT will
be introduced across the GCC nations in a consistent and
coordinated manner, although it does not mean that each
jurisdiction will have an identical law to govern the application
and collection of VAT.
A five-per cent levy will apply to
certain goods, including consumer goods, as agreed by
the Unified Agreement last June.
The absence of VAT in the GCC
nations has been an anomaly given that VAT is applied in more
than 150 countries around the world. The move is in line with an
International Monetary Fund recommendation for Gulf states to
impose revenue-raising measures including excise and value added
taxes to help their adjustment to lower crude oil prices which have
slowed regional growth and seen national deficits reach
unsustainable levels.
This news is relevant to any foreign
brand which operates in the GCC. Foreign investment restrictions
mean that most brands have to use a franchising or distribution
model in the GCC, and the imposition of VAT may well impact on the
level of fees which are paid by the local operator to the
franchisor/principal, particularly where the commercial model
includes an ongoing percentage of turnover or profit.
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.
