VAT in the Gulf: Bahrain set to become third GCC state to introduce a VAT system

In January 2019 Bahrain will become the third Gulf Cooperation Council (GCC) Member State to introduce a VAT system. In doing so they follow the path of Saudi Arabia and the UAE that did likewise in January 2018. Oman and Qatar are expected to do so in 2019 with Kuwait to follow suit later.

Oct 8, 2018

Bahrain is set to become the third Gulf Cooperation Council (GCC) member state to introduce a VAT system. The Bahrain parliament has voted to approve a draft law that will lead to the introduction of the new taxation system on January 1, 2019.

GCC VAT update

At the start of 2018 new VAT systems were introduced in Saudi Arabia and the UAE. Elsewhere in the Gulf reports suggest that Oman and Qatar could possibly introduce new VAT systems in early to mid-2019. The remaining GCC member state - Kuwait - is expected to do so over the next 18 months.

Back in June 2016, all six Gulf Cooperation Council (GCC) member states signed the Common VAT Agreement. It was agreed that each GCC Member State would introduce a VAT system at a rate of 5%.

As VAT has been introduced from scratch every supply of a good or a service provided in the course of business are in scope. This is not a specific law targeting foreign suppliers of digital services. However, the result is the same, non-resident digital service suppliers, with sales in the GCC Territory that introduce a VAT system, must register, collect VAT, and remit it to the relevant tax authority.

So, what has happened with VAT in the GCC?

In early 2018 Saudi Arabia and the UAE became the first GCC Member States to introduce VAT systems, they will be followed by Bahrain on January 1, 2019.

Bahrain

Bahrain will introduce a new VAT system on January 1, 2019.

Back in February 2018, Reuters quoted Bahrain’s Minister of Finance Sheikh Ahmed bin Mohammed al-Khalifa as telling a conference in the capital Manama that his Ministry will be “working with parliament on VAT and aim to have everything set up by the end of 2018.”

An August 2018 report, in the UAE daily Khaleej Times, the introduction date was predicted to be January 2019. This was later confirmed when Bahrain’s parliament approved the VAT agreement for introduction in January 2019.

Saudi Arabia

In February 2017, Saudi Arabia ratified the GCC VAT framework and committed to introducing VAT on January 1, 2018.

The General Authority of Zakat and Tax (GAZT) is responsible for managing the implementation, administration and enforcement of VAT in Saudi Arabia. It does so in close coordination with other relevant entities. More here.

United Arab Emirates (UAE)

On July 31, 2017, President of the UAE His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the landmark Federal Law No. 7 of 2017 for Tax Procedures. This law established the foundations for the planned new UAE VAT system. The Federal Tax Authority (FTA) is the responsible authority in relation to the administration and collection of the VAT.

Online registration for VAT in the UAE opened in mid-September 2017. On November 27, 2017, the VAT Executive Regulations were signed into law. The VAT Executive Regulations were issued after His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the Federal Decree-Law No. 8 of 2017 for Value-Added Tax (VAT) on August 27, 2017. More here.

What is next for VAT in the rest of the GCC Territory?

Oman

In early 2018 Oman’s Ministry of Finance postponed the introduction date of the new VAT system, it is expected to be implemented in 2019. Oman’s Minister of Finance, Darwish bin Ismail al-Balushi, approved the introduction of VAT on March 28 via Ministerial Decision No. 64⁄2018.

A late September 2018 report in the Gulf Digital News (GDN) website stated that Oman would introduce VAT on September 1, 2019.

Qatar

It is possible that Qatar may introduce a new VAT system before the end of 2018. The Fitch Group, named in a recent BMI Research report on Qatar's immediate fiscal outlook, stated that it is factoring in the implementation of a 5% VAT in the second half of 2018. This is backed up by reports from recent International Monetary Fund talks where the Qatari government was adamant that the VAT implementation would proceed as scheduled.

Previously, there was caution in Qatar around the introduction of the VAT. According to Doha Bank CEO R Seetharaman the implementation of VAT in Qatar “depends on several factors like the fiscal policy, revenue streams and commodity prices. The recent budget announced by Qatar 2017 is quite comprehensive, and my opinion is that VAT might be deferred here to assess how it works out in countries of the region where it will be implemented soon.”

Kuwait

In March 2018 the Kuwait National Assembly pushed back a vote on the implementation of a VAT system. While no definitive date has yet been set for the introduction of a new VAT system, Reuters reports from Kuwait have suggested the possibility of the VAT system introduction being postponed until 2021.

Lessons learned from Saudi Arabia & UAE implementations

Difficulties related to that fact that these were full introductions of new VAT systems. As a result, the main focus was not on foreign suppliers of digital services to consumers in these GCC Member States. The focus and energy of tax authorities were, naturally, that local companies got it right.

One major source of confusion, for example, has been on the issue of a sales threshold. Thresholds only apply to local suppliers. No sales threshold exists (in the Saudi Arabian and the UAE implementations) for foreign-based digital service suppliers with consumers in these GCC Member States.

The rules that specifically relate to foreign-based suppliers were published slightly later than the original VAT rules. This meant that for example in Saudi Arabia, the requirement for an agent was revealed after the original VAT implementation date of January 1, 2018. This requirement was confirmed in early February, as a result, registrations have been slightly delayed.

This situation is expected, of course, with such a major implementation and will have no major consequences. Now the relevant tax authority positions towards foreign-based suppliers and the specific requirements that relate to them are much clearer. This clarity will lead to much smoother registration levels and increased compliance.

Taxamo content is created for guidance only, please consult your local tax advisor.

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