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A Thousand Nights and Arabian VAT

Only a few know that the member states of the Persian Gulf Cooperation Council, i.e. Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, Qatar and Oman started a common customs union in the Persian Bay area from 2015.

From 2018, rich Arabian oil states will start to introduce VAT also

After ensuring the free movement of goods, the next logical step is the introduction of a harmonized VAT system. This is not the first time that economically developed oil monarchies made an attempt at introducing VAT. The first proposals for legislations were prepared in the United Arab Emirates in 2007 but VAT was not introduced after all having regard to the economic crisis of 2008. However, with economic growth enhancing, further development of infrastructure become increasingly urgent the financing of which made the introduction of common VAT necessary. Saudi Arabia and the United Arab Emirates plan to introduce value added tax on 1 January 2018 while the other states (Bahrain, Kuwait, Qatar and Oman) will introduce the new tax type later, until 2019. 

Basic rules relating to new Arabian VAT

It is interesting about the Arabian VAT system that companies may request a tax number from an annual revenue of USD 50,000 and will be obliged to request one from annual revenue of USD 100,000, basically meaning that all large and medium sized enterprises will have to register for local VAT purposes. This also applies to the foreign businesses pursuing VAT-able activities unless the tax payment obligation is passed onto a local enterprise, for example in the case of reverse taxation. VAT registration is performed electronically but taxpayers will have to be able to provide the documents required for the registration process and the VAT analytical records and other VAT statements in Arabic. If there is tax payment obligation, a local fiscal representative (also approved by tax authorities) will have to be appointed. Local related parties will have the option of declaring and paying VAT as a tax group. 

The rate of VAT will be 5 percent in all countries while export activities directed outside of the area and the supply of services to taxable persons outside the area will be exempt from taxation with a right of tax deduction. Tax exemption will also apply to the leasing of residential properties and to products of the financial sector including financial products and insurance provided under Islamic law. 

Saudi Arabia and the United Arab Emirates have already published their VAT regulation – a number of materials are already available on the websites of the tax authorities in question. 

Who will be concerned by the changes?

The introduction of VAT in the states of the Persian Gulf will, above all, concern the companies whose business processes are partly conducted in this area, for example, companies having a subsidiary or trading in the region and therefore requiring local tax registration and tax administration. 

The companies concerned should get in touch with VAT experts having international professional connections covering the Persian Gulf area also. 

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