What is the GCC VAT Agreement?
The GCC VAT Agreement establishes a common framework for implementing a Value Added Tax (VAT) system across all member states: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. It essentially creates a blueprint for a unified VAT regime, promoting consistency and streamlining tax administration within the GCC.
Key Features of the Agreement:
- Standardization: The agreement mandates a standard VAT rate of 5% across member states. This harmonization simplifies cross-border trade and reduces administrative burdens for businesses operating in multiple GCC countries.
- Flexibility: While outlining the core principles, the agreement allows individual member states to enact their own VAT laws. This empowers countries to tailor the system to their specific economic needs.
- Focus on Efficiency: The agreement emphasizes streamlined procedures for VAT registration, collection, and remittance. This fosters transparency and reduces compliance costs for businesses.
The key features of GCC VAT Agreement are:
- Businesses with annual revenue of over AED 375,000 ( US $ 100,000) will be required to register for VAT purposes.
- Businesses with annual revenue between AED 187,500 ( US $ 50,000) and AED 375,000 will have the option to register for VAT purposes.
- The standard VAT rate will be 5% unless a zero rate or exemption applies.
- Individual GCC countries have the right to subject certain food products to a zero rate of VAT.
- The Member States have the right to subject the following sectors to a zero rate or to exempt them from VAT:
a) Education
b) Health
c) Real Estate
d) Local Transport
- The Member States have the right to subject the oil sector, petroleum derivatives, gas and medical supplies to a zero rate of VAT.
- Intra-GCC and international transport will be subject to a zero rate of VAT.
- The export of goods to jurisdictions outside of the GCC Member States will be subject to a zero rate of VAT.
- The Member States have the right to exempt financial services from VAT. This is not defined but would broadly constitute of dealings in money, securities, foreign exchange and the operation and management of loan accounts, deposits, trade credit facilities and related intermediary services. Fee based services transacted by a financial institution are not exempt. However, Member States may choose to apply a different VAT treatment to financial services.
- Supplies of goods and services from a VAT registered person in one Member State to a VAT registered person in another Member State are subject to the reverse charge mechanism.
- Two or more legal persons resident in the same Member State can apply for a VAT group.
- Each Member State should determine the VAT treatment for free zones.
VAT Rates in GCC Countries :
The VAT mechanism in Dubai and other GCC countries would be categorized under three different type of tax rates.
1. Standard rates at 5%
2. Zero-rated products at 0%
3. Exempted products
The GCC VAT Agreement creates a standardized tax system across the Gulf, simplifying trade and finances. Consult Estagrow Solutions for specifics.
