Ready for VAT in the Gulf – 2018

Thu 9th Mar 2017

Many businesses trading in the Arabian Gulf region remain unprepared for the implementation of Value Added Tax in the six Gulf Co-operation Council states.  This puts them at risk of delays in product deliveries, invoicing sales, settling payments and being subject to potential audits and fines.

The delay in the publication of legislation or guidance has added uncertainty and risk to this major overhaul of ERP, stocks, purchasing and sales and IT systems, and encouraged companies to ignore the changes.

Six Gulf states to launch VAT 1st Jan 2018

The six Gulf states – Saudi Arabia; Bahrain; Qatar; Oman; UAE and Kuwait – have agreed to simultaneously introduce a harmonized VAT from 1st Jan 2018.

Key features will include:

  • 5% standard VAT rate
  • Exemptions for health, education, certain financial services, public transport and transport
  • Nil-rating for some foodstuffs and oil-related supplies
  • Nil-rating on B2B supplies of goods and services within the GCC region
  • Exports from the GCC will be VAT exempt
  • Group registration for connected companies within country – although doubtful across the GCC region
  • The VAT registration threshold will be $100,000 per annum, with an option to voluntarily register for small businesses

VAT implementation risks

Faced with a lack of guidance or legislation, companies face a range of risks, including:

  • Commercial issues around determining whether to pass on all or any of the VAT charges, including understanding likely competitor tactics.
  • Short notice for changes in IT systems and upgrades in reporting platforms
  • Readiness of ERP and/or tax engines to process transactions
  • Cash flow risks on unrecoverable VAT, reporting incurred VAT, VAT remittances
  • Understand VAT requirements on intra-GCC transactions – where is nil-rating applicable
  • VAT registration requirements and process
  • Bringing together various stakeholders
  • VAT expertise issues – hiring VAT experienced staff and developing training programmes for existing staff

What businesses should focus on now

  • Companies trading in the GCC region, whether resident there or selling/buying there, should consider addressing a range of issues immediately to help mitigate the risks of the introduction of VAT.  This should include:
  • Create a panel of stakeholders from accounting, tax, finance, HR, AP and AP, IT, Sales and Marketing
  • Map out trading arrangements, supply chains etc, likely to be impacted by the introduction of VAT, including cost implications
  • Assess budget issues, including costs of any changes
  • Reassess IT and accounting requirements, ability to adapt to the implementation of VAT and what, for example, ERP vendors are planning for upgrades
  • Set timetables for drawing up a risk impact report for the Board/Senior Executives
  • Draw-up a skills requirements schedule, and begin to identify internal resources and the need to look outside the company – including consulting or employment