GCC VAT Framework Agreement Summary Notes

The Gulf Cooperation Council (GCC) released the framework agreement governing VAT in the region in May 2017. This 33-page document contains outcomes that resulted from the resolution that was put forth in the GCC Supreme Council meeting on the 9th-10th December 2015.

The GCC VAT Framework Agreement is a landmark document that outlines the value added tax (VAT) system framework between the six GCC members i.e., Bahrain, Qatar, Saudi Arabia, Oman, Kuwait, and the UAE.

It is also worth noting that this VAT treaty is more of a framework agreement as the name suggests and not a law. Meaning it simply gives these members a collective framework for the VAT system and its legislation.

When working out the precise mechanics of the VAT system in the UAE or other GCC regions, taxpayers have to look at the local laws and their implications. Still, there are some aspects of this framework agreement that are mandatory for all GCC members to implement.

This article explores the ins and outs of the GCC VAT Framework Agreement in detail to help you understand its main aspects so keep on reading till the end.

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• What is GCC VAT Framework Agreement?
• What Does the VAT Framework Agreement Cover?
• Key Points/Summary Notes from the GCC VAT Framework Agreement
• Place of the Supply in GCC VAT Framework Agreement
• Taxable Supplies
• VAT Zero Rated Supplies
• VAT Exempt Supplies
• The Date of the Tax Due

What is the GCC VAT Framework Agreement?

This is a unified VAT agreement recognized by the GCC countries which includes six Arab states. This agreement gives a detailed framework for the VAT implementation in the member states. This framework agreement introduces a VAT on the supply of goods or services at a standard rate of 5%.

The framework also mandates the member states to implement local legislation based on the suggestion given in the agreement. Once the ratification of the agreement is done each member is expected to integrate this framework locally.

What Does the VAT Framework Agreement Cover

The GCC VAT Framework Agreement consists of 15 chapters and 78 articles covering every major aspect of VAT and taxation in the Gulf region.

It includes

• General definitions as well as principles pertaining to the scope of tax.
• Supplies i.e. goods or services that fall within the scope of the tax.
• Places of supplies along with special cases.
• Due Dates and taxable value calculations.
• Exempt or zero-rate supply provisions.
• VAT liability and deduction.
• VAT registration obligations.
• Tax or VAT invoice and retention of records.
• VAT return filing requirements and completion.
• Intra-GCC arrangements.
• Settlement or refund of tax.

Key Points/Summary Notes from the GCC VAT Framework Agreement

This section details the key points that are a part of the GCC VAT Framework Agreement. According to this agreement, every business or entity must register for VAT in the UAE if its annual revenue exceeds SAR 375,000 (or its equivalent in the GCC State currencies) . If the revenue is 50% of the mandatory registration threshold, the VAT registration is optional.

Following are the main summary notes from the GCC VAT Framework Agreement that are particularly important

1. Place of the Supply in GCC VAT Framework Agreement

• VAT will vary based on the place of supply and the local VAT regulations in that region.
• Place of supply refers to the place where the supplier resides or where the goods or services are used by the consumer. The place of import of goods will be the country of the first point of entry.
• In case when the goods are provided with a means of transport the place of supply is the place from where the transport starts.
• There are also rules that transfer the place of supply of goods with transport to the customer if they are registered for VAT in another GCC member state.
• In the case of services, the place of supply is the current residence of the supplier. However, the place of supply shifts to where the customer resides if the customer is taxable.

2. Taxable Supplies

These include

• All the goods and services such as sales, leases, disposals, transfers or ownership, etc. that take place in a business.
• Transfer of goods to and from GCC members.
• Transfer of goods and services to and from the rest of the world.
• Import of goods and services.
• Deemed supplies.
• VAT will apply to the supply of oil, water, gas, electricity, means of transport, real estate transactions, telecommunication, leisure spots, sporting events, and electronically provided services.

3. VAT Zero Rated Supplies

Zero-rate is a rate of tax for a taxable supply that entitles the supplier to a credit for the VAT incurred on costs. These supplies include

• Medical supplies as determined by the Committee of Health Ministers.
• Basic food items and International and intra-GCC transport.
• Supply of investment in the form of platinum, gold, and silver.
• Supply outside the GCC such as exports.

4. VAT Exempt Supplies

VAT exempt means a supply is not taxable. If you are a taxable person making exempt supplies you cannot claim credit on the VAT incurred on the costs. These supplies include

• Financial services are carried out by authorized financial institutions.
• Education, medical, local transport, and certain real estate sectors.
• Farming, fishing, and companies that host international forums.

5. The Date of the Tax Due

Following will be the date of the tax due, whichever comes first:

• Date of the tax invoice
• Dates on which the partial or full payment was received, and to the extent of the received amount.

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Following are some additional points from the GCC VAT Framework Agreement that you need to pay attention to

• In situations where not all of the input tax incurred is for the provision of supplies, a part of the tax can be recovered against the output tax.
• There may also be provisions where you are entitled to claim input tax that was incurred before registration.
• There must be a tax invoice issued for every good or service provided and the record must be kept for at least 5 years.
• In some cases, tourists may be able to claim a refund on the VAT in the GCC member states subject to certain conditions.    

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Conclusion

So, this is all there is to know about the GCC VAT Framework Agreement. It is also important to remember that the agreement was originally released in Saudi Arabia and it might not necessarily be relevant or completely applicable in the UAE.

Moreover, the original framework was introduced in Arabic which means its English translation might have some discrepancies.

For example, in the UAE, you can find two legislative documents one is the VAT Procedures Law related to the legal framework while the other is the VAT LAW which is a detailed document containing legal guidelines that you need to keep in mind.

This is why it is important that you get a professional opinion from a reputable accounting service in the UAE before applying for VAT to avoid potential errors.

Visit Alpha Pro Partners today to get the best VAT compliance and VAT accounting services in the UAE.  

Disclaimer

This article is written in general terms and, therefore, cannot be relied on to cover specific situations; the application of the principles set out will depend upon the particular circumstances involved. We recommend that you obtain professional advice before acting or refrain from acting on any of its contents.

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