GCC companies are approaching the implementation of VAT, value-added tax, system.
The GCC Ministers of Finance met in Jeddah on Thursday to approve in principle the Value Added Tax (VAT) and Excise Tax treaties.
The GCC states include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
The Excise Tax system is expected to be implemented by January 1 2017, with VAT expected by January 1 2018. Some administrative matters such as tax on intra-GCC trade are yet to be resolved.
With the approval of the GCC VAT, the GCC countries will be on a tight timeline of 18 months to prepare for the first phase of VAT implementation by 1 January 2018. However, a number of GCC countries have already made substantial progress on preparing their tax administration systems for VAT and from July 2016 onwards the focus will shift to preparing the business community for VAT.
By the last quarter the VAT and Excise Tax Framework Agreement is expected.
GCC VAT system: how it will work
The Undersecretary of the United Arab Emirates’ Ministry of Finance Mr. Younis Al Khoury, announced that companies in the UAE that report annual revenues over 3.75 million AED (US$1.021m) will be obliged to be registered under the GCC VAT system.
Mr. Al Khoury also confirmed that companies whose revenues fall between 1.87 million AED (US$509,000) and 3.75 million AED (US$1.021m) will have the option to register for VAT during the first phase of the VAT implementation.
Firms should start assessing the potential impacts of the new taxes on the business, including on margins and cash flow, said a PwC statement.
Businesses should also prepare for obligations including charging, collecting and paying taxes on time.
“The introduction of VAT and Excise Tax constitute an important policy reform aiming to help GCC Governments achieve medium to long-term social and economic policy goals and reduce reliance on hydrocarbon revenues,”
said Jeanine Daou Middle East Indirect Tax Leader PwC.
“Approval of the treaties is an important development as it sets out common principles that will guide the application of VAT and Excise Tax at a national level by each individual Member State.”
VAT will be collected on transactions involving the payment of certain goods and services. Sectors like education and healthcare should not be included. Staple food items would also be exempted from VAT.
Excise tax is levied on specific merchandise or products once during import or production stage.