The Gulf cooperation council (GCC) has made it signed the unified value-added tax (VAT) framework from all the GCC countries as stated by the KPMG. Bahrain also signed the bloc as the last country to do so, with other members. The VAT framework is a major draft considered by all the members of GCC and it holds a special national value for the added tax legislation which will be issued in every member country under the GCC.
A summarized declaration was made as Saudi Arabia ratified the Gulf Cooperation Council (GCC) Value Added Tax (VAT) Framework Agreement by Royal Decree No. M/51 dated 31 January 2017 (03/05/1438H). The text of the agreement has been published in the Official Gazette – UM AL QURA by way of Circular Number 4667 dated 20 April 2017 (24/7/1438).
The VAT framework signed is a standard set of laws and principles and once ratified, the member countries and can apply their own set of rules and regulation with according to the standard GCC framework. Currently, a provision of implementing a standard rate of tax of 5 percent VAT is ascertained while there are various goods and service which are totally exempted and or have a zero rate structure.
VAT is a value added tax as it sounds to be levied on each and every goods or service included at every stage in the chain of production till the end consumer. A probable time schedule by the GCC countries to implement the VAT is from starting off 2018 as UAE also wants to implement the VAT scheme from the January 1st, 2018. KMPG ascertained various significant points and mentioned that the VAT will be affecting all the business coming under the GCC either directly or indirectly as a transaction accrued business will be impacting the economy as a whole.
It further stated that “Finance, legal, IT, sales, marketing and even human resource(divisions) must understand the impact of VAT on their functioning and determine whether the introduction of VAT will result in additional costs, which could be actual or cash flow or compliance-related.”
Some of the significant features of this VAT framework are as follows:
The standard VAT rate is 5 percent and a provision for a zero rate tax or total exemption also included.
The exempted sectors include Education, Health, Real estate, Local transport.
The member countries have also rights to levy zero rate of VAT on petroleum products, oil sector, gas, certain food products, medical supplies, Intra-GCC, international transport and export of goods to jurisdictions outside of the GCC Member States.
The member countries also occupy right to exempt the financial services out of the VAT however, the member states can apply different mechanism of VAT application on the financial services.
A reverse charge mechanism is applicable to the transaction of one taxpayer of a member state from the other member state taxpayer.
The provision for GCC free zones are not mentioned under the framework and every member state is open to operate their own VAT implication.
An annual turnover of over SAR 375,000 (US$100,000) will be subjected to register under the VAT scheme while an annual turnover between SAR 187,500 (US$50,000) and SAR 375,000 have the option to register under the VAT scheme.