Highlights of GCC Unified VAT Treaty - IMC
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Highlights of GCC Unified VAT Treaty

Introduction

The treaty for Value Added Tax signed by GCC nations is finally out in the public domain. The much talked about treaty is being published in the official gazette of the Kingdom of Saudi Arabia (KSA). It is one of the crucial steps in implementation of VAT in the region. The KSA had already announced that VAT shall be implemented in the country from 1 January 2018. This treaty is the base document for the all the member nations to prepare and implement the legislation in their respective jurisdiction. We shall highlight the major point in the treaty in coming paragraphs.

Highlights

  • The standard rate of VAT will be 5%.
  • The taxable persons can avail input credit for the VAT paid/ incurred for procuring/ manufacturing taxable supplies of goods and services.
  • All businesses have annual turnover of Saudi Riyals (SAR) 375,000 or its equivalent in other currency are mandatorily require registering themselves for collection of VAT. The option of voluntary registration is available for business having minimum 50% of above mentioned turnover.
  • Treatment of VAT is some specific sectors, namely, education, real estate, health care and local transport shall be decided by each member nation. It is the discretion of the nation to keep it exempt, or charge VAT at any rate between zero to five percent. It is important to note that specified medical equipment and medicines are chargeable at zero rate.
  • Each member nation may decide for VAT treatment of financial services sector. The treaty stipulates these services to be exempt with a right to reclaim input tax credit.
  • The treaty mentions that the food products shall be chargeable at standard rate of VAT. However, it is left up to the discretion of member nations to define the rate of VAT on food products in their jurisdiction.
  • Rate of VAT on Oil and Gas products are left to the discretion of member nations. The member nations shall decide the define the same best suitable for them.
  • Export of goods and services outside GCC will be subject to VAT at zero rate.
  • The supplier of services outside GCC shall pay VAT based on reverse charge mechanism.
  • The transport of goods and passengers shall be chargeable at zero rate.

Final Word

The base of law is already out and the more rules for implementation are expected post Ramadan. Prepare yourself for VAT with experts. Please feel free to write us at bc@intuitconsultany.com