The United Arab Emirates (UAE) and Saudi Arabia have begun charging VAT on goods and services from 1 January 2018, becoming the first two states to implement the new tax which has been agreed in principle by the six-member Gulf Cooperation Council (GCC)
Traditionally Gulf states have offered a tax-free environment to attract foreign workers, but falling oil prices have led to the decision to introduce VAT at 5% across the region. The new tax applies to fuel, food, clothes, utility bills and hotel accommodation, but not financial services, medical treatment or public transport.
In the UAE, the threshold for mandatory VAT registration for businesses is AED 375,000 (£75,280) turnover in the past twelve months. Businesses that were not yet required to register but whose supplies will exceed this threshold within a period of 30 days must register. The UAE estimates that in the first year, VAT income will be around AED 12bn.
The mandatory registration threshold is SAR 1m (£197,000) in Saudi Arabia. The deadline for registration expired on December 20, 2017.
In June last year, on the recommendation of the IMF, Saudi Arabia and the UAE applied a 100% selective commodity tax on tobacco and energy drinks and 50% on soft drinks, as well as some other specialist taxes, but there are no plans to introduce income tax.
Guidance on the new VAT regimes has been released by Saudi Arabia's General Authority of Zakat and Tax (GAZT) and the UAE's Federal Tax Authority.
The other GCC states - Kuwait, Bahrain, Oman, and Qatar – have agreed to introduce VAT but have not announced a specific timeline for doing so.
Saudi Arabia VAT guidance is here.
UAE VAT guidance is here.
Report by Pat Sweet
