This guide was last updated in January 2019.
A common VAT agreement governs the implementation of VAT in the six states which together make up the Gulf Cooperation Council (GCC). The UAE and KSA implemented VAT on 1 January 2018 and Bahrain did so the following year, on 1 January 2019. Oman is expected to implement VAT later this year, while Qatar and Kuwait have delayed doing so until 2020-21.
This guide provides a brief overview of the VAT registration and accounting requirements in the UAE, KSA and Bahrain. Note that there are many factors which may affect the overall obligations of an international business in the GCC, including type of transaction, applicable place of taxation rule, use of intermediaries, scope of the reverse charge, etc. These should be considered on a case by case basis.
The first question that international businesses trading in the GCC will need to ask themselves is which entity engages in the GCC transactions, and what the GCC VAT residency status of that entity is. The answer to this question should be based on the supporting contracts, as well as the commercial reality.
Whether an entity is resident or non-resident for GCC VAT purposes will affect how it registers and accounts for VAT.
If the entity engaging in the GCC transactions is:
- a local GCC established company whose place of establishment is in the GCC: the entity is resident for GCC VAT purposes;
- a GCC branch of a foreign established company with a fixed establishment in the GCC: the entity is resident for GCC VAT purposes;
- other operations in the GCC with the potential of a fixed establishment in the GCC: the entity has the potential to be resident for GCC VAT purposes. The definition of 'fixed establishment' should be analysed in the context of the entity's operations in the GCC;
- no local entity, branch or operations on the ground in the GCC, with no place of establishment or fixed establishment in the GCC: the entity is non-resident for GCC VAT purposes.
International businesses which trade in the GCC will generally fall into one or more of three broad scenarios:
1. Non-resident supplier selling goods/rendering services cross-border to non-taxable persons in the GCC:
- obliged to register for VAT in the GCC
- obliged to charge VAT at the applicable local rate and issue valid VAT invoice within timeframe
- obliged to comply with all local compliance and documentation requirements
2. Non-resident supplier selling goods/rendering services cross-border to a registered taxable person in the GCC:
- generally, the reverse charge mechanism will apply making the taxable customer responsible for any GCC VAT due on the transaction
- no obligation to register for VAT purposes or meet local compliance/documentation requirements unless already registered for VAT purposes in the GCC in relation to other taxable transactions
3. Resident supplier selling goods/rendering services domestically to any local customer in the GCC:
- same obligations as under scenario 1 above.
Different VAT registration thresholds apply depending on whether the entity is resident or non-resident.
Where a non-resident entity is obliged to account for VAT on a taxable transaction in the GCC (scenario 1 above), no threshold applies - i.e. the first $1 (or local currency equivalent) of trade would trigger a VAT registration obligation.
The normal registration thresholds for resident entities are a mandatory $100,000 (or local currency equivalent) threshold; and a voluntary $50,000 (or local currency equivalent) threshold.
VAT status of customers
Often, the VAT status of customers will impact on the VAT obligations of an international business in the GCC. Therefore, it is imperative that the status of customers is identified; VAT registration numbers are obtained, validated and retained; and correct customer details are displayed on supporting invoices.
Both the Federal Tax Authority (FTA) of the UAE and the General Authority of Zakat and Tax (GAZT) of the KSA have published validation tools online to assist suppliers with validating their customers' VAT registration numbers. Bahrain may also follow this approach.
Tax agents and tax representatives
International businesses may choose to use a tax agent or representative to assist them with their VAT registration and compliance obligations in the GCC; unless they are required to register and account for VAT in the KSA in which case it is mandatory for non-resident businesses to appoint a tax representative.
A tax agent acts on behalf of a business with the local tax authority to file returns, submit documentation, engage in communications etc.
A tax representative performs all the roles of a tax agent, and also generally makes and receives payments and arranges for the retention of documentation. Unlike a tax agent, a tax representative is jointly and severally liable for the tax obligations of the business.
Payments to tax authorities
International businesses now have more options than ever for making payments to the tax authorities. However, challenges remain.
UAE payment options:
- E-Dirham: only available to international businesses which have a local branch or subsidiary;
- credit card: attracts a charge of between 2% and 3% of the total payment amount;
- bank transfer: the most effective option, however many businesses have experienced difficulties transferring funds from a foreign bank to a UAE GIBAN number.
KSA payment options:
- non-resident businesses registered for VAT in the KSA must make all payments through their designated tax representative (see above);
- resident businesses must pay via bank transfer using the SADAD payment system.
In Bahrain, payments must be made by electronic transfer. No further details are currently available.
Foreign VAT refund mechanism
Schemes will be made available to offer VAT refunds to international businesses which are not registered and are not required to be registered in the GCC. Although these schemes are not yet active, some details have been disclosed:
- the business must meet 'foreign business' criteria;
- no deduction for naturally 'blocked', or exempt, supplies;
- a similar refund mechanism must be available to GCC businesses in the foreign country of establishment;
- refund period, submission timing and minimum amount thresholds will apply.
International businesses should retain all books, accounts and documentation which support their residence and registration status in the GCC, together with details of all GCC transactions and the treatment of these for VAT purposes.
Records may be retained on paper or in electronic format, subject to certain conditions. If retained digitally, there is a general requirement that records should be accessible through a computer within the GCC and they must be able to be produced in hard copy for inspection within a short timeframe, if requested.
For international businesses, the most noteworthy obligations are the Arabic language requirements. Records may be required to be reproduced in Arabic on inspection by the relevant tax authorities; and in the KSA, tax invoices must be issued in Arabic.
Generally, records must be retained for five years in the UAE or Bahrain; and for six years in the KSA.