In the rapidly reforming legal environment of the GCC, Introducing Value Added Tax (VAT) is one of the boiling topic. we have highlighted important imposition of VAT for GCC businesses. We recommend some easy phases businesses might think about now, in preparation for the implementation of VAT.
What is VAT?
VAT is a tax on the supply of goods and services. Collection of VAT is enabled by businesses, through the supply chain, on account of the government. VAT is paid by the purchaser of the goods or services at every step of the supply chain.
You are required to account to the government for the difference between the output VAT and input VAT .If you are in the process of the supply chain, you can offset the VAT you pay to your suppliers (known as input VAT) from the VAT you gather from the purchasers of your goods or services (known as output VAT)., if the output VAT is the excessive amount. In a lay man’s word, in the condition where you have obtain more VAT than you have paid. If you have paid more input VAT than you have received as output VAT, you may recover the difference from the government. The end purchaser is ultimately liable for the full amount of VAT.
The national governments of the GCC states have been collaborating on the imposition of VAT concurrently across the Gulf Cooperation Council. A Gulf Cooperation Council Unified Agreement for VAT (also known as the VAT Framework Agreement) exists in final form, but has not been made official.
The VAT Framework Agreement needs to be agreed and brought into effect by respective of the GCC states, exclusively. It is likely that each GCC State also will issued its own legislation to practically implement VAT in its jurisdiction. Untill nw, the government of the Kingdom of Saudi Arabia has accepted the VAT Framework Agreement, as announced in the KSA Official Gazette (but without issuing the Agreement). No other GCC state has issued any form of sanction yet.
However, the issue of increasing price or absorbing VAT will be a major concern for companies selling small value items.
“Consider a product is sold for AED1 now but the company can’t simple increase it by 5 percent to AED1.05. Hence, it has to either absorb the cost and maintain the same price, or round it up on the higher side that will lead to a substantial price increase” he said.
Conn said companies are likely to face cash flow issues post VAT is implemented since the government is yet to clarify on duration of the tax refund process.
There is market assumption about the contents of the VAT Framework Agreement. The following are the key facts which have been made official for UAE Companies by the UAE Ministry of Finance:
The UAE government has specified that it is probable that VAT will be effective in the UAE on 1 January 2018.
The time span for other GCC states may not be the same.
The average rate of VAT is expected to be 5%.
Companies will require to be VAT registered.
The UAE Ministry of Finance has specified that registration is likely to be accessible three months before the launch of VAT in the UAE.
Companies will be able to complete their VAT registration online.
Companies are required to complete and submit VAT returns to the government on a consistent basis. The UAE Ministry of Finance has specified that it is anticipated that the default VAT return filing period will be three months. It means, there will be a quarterly filing and payment/reclaim process for maximum Companies