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EMEA Dbriefs presents:


Update on VAT in the Gulf Cooperation Council
Daniel Lyons, Bruce Hamilton
12 October 2017
Agenda

• Tax reform in the GCC


• VAT in the UAE and KSA
• Excise tax in the GCC
• VAT registration
• Penalties
• Impact on businesses in the GCC
• Questions and answers

©2017 Deloitte Touche Tohmatsu.


Tax reform in the GCC
Publications to date in the GCC

Engaged in
Published treaty or
Who peripheral
laws?
activities?

GCC Final N/A

Final VAT Law Final executive


regulations
Yes (e.g.
KSA
workshops/seminars)
Final Excise Final executive
Law regulations
Final VAT Law Executive
Yes (e.g.
regulations Q4
workshops/seminars),
UAE
Engagement with the
Final Excise Final executive
Big 4
Law regulations

No (but has published draft


Kuwait No
excise law)

No (but has publicly stated that


Qatar a draft law has been approved No
by the Cabinet)

‘VAT in the GCC guide’ mobile app


Oman No No
Deloitte is the first professional services firm
to launch an app on VAT. The app has been
downloaded over 11,000 times.
Bahrain No No

©2017 Deloitte Touche Tohmatsu.


VAT in the GCC
Announcements to date

The GCC VAT Treaty was released earlier this year.

The UAE Federal Tax Procedures Law was released in the UAE and governs the
general rules and procedures relating to VAT and other taxes in the UAE.

The UAE released its VAT law in August 2017 and the executive regulations are expected
to be released soon.

The UAE’s Federal Tax Authority (FTA) website went live in August 2017.

Businesses in the UAE can register online for VAT now with set dates by which registration needs
to occur, failing which penalties apply.

The Ministry of Finance in the UAE is organising events tailored to different audiences and
industry sectors to discuss the VAT legislation.

KSA has released a final VAT law and final VAT executive regulations.

Businesses can register online for VAT in KSA.

Businesses now have access to the laws, so they can better understand the potential
impacts VAT will have on their business processes and reporting obligations.

All these updates indicate the UAE and KSA are committed to the VAT ‘go-live’ date
of 1 January 2018.
©2017 Deloitte Touche Tohmatsu.
The UAE Federal Tax Authority

The FTA is the federal tax body in the UAE that was established to oversee and manage VAT
and excise tax.

You will need to register for both VAT (and where applicable, excise tax), and pay tax and file
tax returns to the FTA.

Businesses with an annual turnover of taxable supplies exceeding AED 150 million should
register before 31 October 2017. Businesses with an annual turnover of taxable supplies
exceeding AED 10 million should register before 30 November 2017.

Businesses with an annual turnover of taxable supplies of AED 375,000 that are made within
the UAE should also register before 4 December 2017 to avoid any delays in obtaining a VAT
number prior to 1 January.

The FTA will conduct tax audits to ensure taxable persons are paying tax, filing tax returns and
keeping appropriate records. Penalties may be applied in a variety of instances, based upon the
nature of the breach that has occurred.

Over time, the FTA will issue guidance and decisions around complex VAT and excise tax
matters.

You can get guidance and assistance from the FTA on its website or helpline, or on the Ministry
of Finance website in regards to general matters around how VAT will be applied and
administered in the UAE.

©2017 Deloitte Touche Tohmatsu.


Poll question 1

How well-informed do you feel about the introduction of VAT in the UAE and/or
KSA? (Please select only one answer)

• Very well-informed, there is plenty of information available


• It is difficult to find up-to-date information about the new rules
• I am aware of the new rules, but have not yet gone into the details
• Don’t know/ not applicable

©2017 Deloitte Touche Tohmatsu.


VAT in the UAE and KSA
VAT treatment of common supplies
Sector KSA UAE
International transport of Zero-rate Zero-rate
passengers and goods, and related
goods, including intra-GCC transport

Local transport Standard rate Exempt

Food items All standard rate All standard rate

Real estate Residential rental (permanent dwelling Residential rental: exempt


designed for human occupation): exempt Bare land: exempt
All other real estate: standard rate New housing e.g. residential buildings and
those designed to be used by charities:
zero-rate
All other real estate: standard rate

Education Standard rate The supply of educational services and


related goods/services for nurseries,
preschool and school education: zero-rate

Higher education institutions owned or


funded by federal or local government: zero-
rate

Health Qualifying medicines and medical goods The supply of preventive and basic
dispensed to an individual for own use on healthcare services and related goods and
prescription at a pharmacy, hospital or services: zero-rate
health care center: zero-rate

Oil and gas Standard rate Crude oil and natural gas: zero-rate

Means of transport (e.g. airplanes for Zero-rate Zero-rate


passengers)

Export of goods and services Zero-rate Outside implementing states: zero-rate

©2017 Deloitte Touche Tohmatsu.


VAT treatment of supplies for special sectors

Sector KSA UAE


Government entities Supplies to these entities will be taxed under Supplies to these entities will be taxed under
the normal rules and VAT will be due the normal VAT rules and VAT will be due

Refunds may be granted on VAT paid on Refunds may be granted to certain specified
supplies if not conducting a commercial entities
business

Unregistered entities Supplies to these entities will be taxed under Supplies to these entities will be taxed under
the normal rules and VAT will be due the normal VAT rules and VAT will be due

Refunds may be granted to selected entities Refunds may be granted to selected entities
(e.g. foreign governments and international (e.g. foreign governments and international
organisations), taxable persons in another organisations), taxable persons in another
GCC member state and taxable persons GCC member state and taxable persons
outside the GCC outside the GCC

Financial services Fee based services: standard rate Fee based services: standard rate
Margin based services: exempt Margin based services: exempt
Life insurance contract by regulated
provider: exempt

Investment metals Gold, silver and platinum at purity level no Gold, silver and platinum at purity level no
less than 99%: zero-rate less than 99%: zero-rate

©2017 Deloitte Touche Tohmatsu.


Excise tax
Excise tax in the GCC: UAE and KSA
The GCC Excise Tax Treaty states that excise tax shall be imposed on goods that are deemed
harmful to human health and the environment. The UAE and KSA have released their excise tax
laws and executive regulations.

Tobacco products = 100% of the tax Energy drinks = 100% of the tax Soft drinks = 50% of the tax
base base base

Typical examples: Typical examples:


• Cigarettes and cigars • Cola drinks
• Shisha tobacco • Carbonated lemonade
• Other flavored carbonated
drinks

©2017 Deloitte Touche Tohmatsu.


Excise tax registration requirements in the UAE

Registration for excise tax began on 17 September 2017 and the law came into effect on 1
October 2017.

All businesses, including retailers, hoteliers, restaurants, importers and manufactures, that have
excise goods were required to complete a stock take of those goods by 1 October 2017 by a
third party.

There is a liability to account for excess stock, i.e. more than two months worth of stock, or
more stock than is normally held by the businesses. If businesses have excess stock, they are
required to register and account for excise tax.

Excise tax is payable by importers, manufacturers, stockpilers of excise goods and


anyone removing excise goods from a designated zone.

Other businesses in the supply chain, such as retailers, that simply sell excisable goods should
not need to register (unless they are also stockpilers) and should not have tax obligations under
the law.

If a business should have registered but has not, it will be subject to penalties for late
registration and late payment of tax and will receive an assessment for the excise tax unpaid.

Once a business has cleared its excess or stockpiled stock and does not intend to keep
stockpiling, it can apply for de-registration. The FTA will review the claim and ensure all the
tax has been paid before making a decision.

©2017 Deloitte Touche Tohmatsu.


VAT registration
VAT registration in the UAE and KSA

The GCC VAT Framework Treaty sets out obligations taxable persons have to register for VAT.

Tax will be imposed on a taxable person.

Definition of ‘person’ is very wide: individual, company, or partnerships.

Every person who resides in the UAE or KSA is required to register where their total value of all
taxable supplies exceeds SAR or AED 375,000 over the previous 12 month period.

The person needs to establish that they are conducting business in making a taxable supply.

A taxable person who makes only zero-rated supplies may request to be excluded from the
mandatory registration requirement.

The concept of business is broad:


• Activities conducted regularly, on an ongoing basis, independently and in any location.
• Includes industrial, commercial, agricultural, professional, service or excavation activities.
• Anything related to the use of tangible or intangible properties.

©2017 Deloitte Touche Tohmatsu.


Registration requirements for taxable persons in the UAE
and KSA

Considerations for
Voluntary registration
not registering:
= SAR or AED
Making zero-rated
187,500
supplies, and
Mandatory
compliance
registration = SAR or
responsibility upon
AED 375,000
registration
.

Registration:
Requirements and
what to expect
Group registration:
Entities have a place of
Deregistration:
establishment in a GCC
Ceases to make
member state, are
taxable supplies and
related parties, and
taxable supplies fall
one person or a
below voluntary
The tax authorities will partnership controls
registration threshold
issue taxable persons the other entities
with a tax
registration or
identification
number

©2017 Deloitte Touche Tohmatsu.


Documents required for registration in the UAE
1. Trade licenses (and copies of trade licenses of other businesses if in a
business relationship)
• Include the number, authority of issue and expiry date

2. Documentary proof of owners – all business owners need to be


identified

3. Certificate of incorporation

4. Documentary proof of managers


• The details of the manager of business
• If the business is a legal entity then the manager/s will need to provide
information around the basis on which they are applying for registration,
if they hold a trade license in the UAE, whether they are registering
voluntarily or mandatorily, if they are applying to create or join a tax
group and if they are appointing a tax agent

©2017 Deloitte Touche Tohmatsu.


Documents required for registration in the UAE
5. Documentary proof of annual turnover
• Taxable turnover for the past 12 months is the value of taxable supplies
and imported goods and/or services

6. Documentary proof of expected expenses – expected expenses


(subject to VAT) for the last 12 months
• The figure should include purchases of goods and services subject to UAE
VAT at 5% or 0% and should exclude exempt and out of scope purchases

7. TRN in other GCC member states, if applicable


• Information on sales of goods and/or services to other GCC member
states

8. Customs registration number issued by the customs authority


• Customs registration information, including customs number and the
department of issue

©2017 Deloitte Touche Tohmatsu.


Liability for VAT registration

The UAE and KSA VAT laws set out the conditions around tax registration and the tax registration
threshold.

AED 187,500 Voluntary registration threshold

AED 375,000 Mandatory registration threshold *

Annual taxable turnover: standard rated supplies and zero-rated


supplies excluding supply of capital assets.

* In KSA, an entity that breaches the mandatory threshold but does not breach SAR 1 million, may defer
registration to no later than 1 January 2019.

©2017 Deloitte Touche Tohmatsu.


Poll question 2

What are the main VAT issues facing your organisation in the GCC? (Please select
all that apply)

• Obtaining sufficient information about the new rules


• Ensuring IT systems are in place
• Being able to recruit and retain VAT specialists
• Whether we will be able to pass on any additional costs in our supply chain
• Amending contracts to include VAT issues
• Don’t know/ not applicable

©2017 Deloitte Touche Tohmatsu.


Penalties
Penalties

The penalties for non-compliance and tax evasion differ significantly between the
UAE and KSA.

• No less than AED 500 for any administrative violation.

The UAE • Will not exceed more than three times the amount of tax in
respect for each of the violations on which the penalty was levied.
• Prison and/or fine not exceeding five times the amount of evaded
tax.

• SAR 10,000 for failure to register as taxable person.

KSA • Minimum SAR 1,000 for failure to pay tax when due.
• SAR 1,000 – SAR 20,000 for failure to file returns and maintain books
and records.
• SAR 1,000 or double the amount of VAT for recipient failure to provide
correct information to supplier.

©2017 Deloitte Touche Tohmatsu.


Impact on businesses
in the GCC
Is your business prepared for VAT?

*Responses from Deloitte’s VAT in the GCC survey

©2017 Deloitte Touche Tohmatsu.


Key VAT impacts and considerations for businesses
in the GCC
Transaction map
• This is a vital document that sets out a business’s transactions and assigns a VAT
treatment.
• This should preferably be automated by the IT department so the correct
documentation, including invoicing, will be produced.

IT systems configuration
• Appropriate programmes for procurement, recording supplies and issuing VAT invoices
need to be in place.
• This will require the combination of a BRD, the transaction mapping, and IT
configuration design.

Communication with vendors and customers


• Businesses should consider communicating the impact of VAT with their suppliers and
customers, particularly around the following:
• The inclusion of VAT clauses in contracts, the importance of giving and receiving
master data, including tax registration numbers, and the necessity of issuing and
receiving compliant tax invoices.
• It should also indicate the parties adherence, or not, to the requirements around the
transitional rules.

©2017 Deloitte Touche Tohmatsu.


Key VAT impacts and considerations for businesses
in the GCC
Cash flow
• There may be a difference in time between when output VAT is paid versus when input
VAT can be claimed.
• Industries making exempt supplies, such as financial services, real estate and insurance
generally cannot recover VAT so may see an impact on their cash flow.
• This may also be a factor in the decision to group, for VAT purposes, commonly owned
companies based in a member state.

Pricing considerations
• Suppliers making standard rated supplies need to consider whether to pass on the full
VAT amount or absorb some costs.
• There are a number of considerations to take into account during the transition period.

Documentation and compliance


• Businesses making taxable supplies need to provide VAT invoices, file tax returns and
ensure they are keeping the correct records and are able to provide these documents to
the tax authorities in Arabic if done in the KSA.
• The UAE in contrast has indicated that it will generally only require translation to Arabic if
the documents are in a language other that English or Arabic.

©2017 Deloitte Touche Tohmatsu.


Questions and answers
Thank you for joining today’s webcast
To view the archive, visit
www.emeadbriefs.com

©2017 Deloitte Touche Tohmatsu.


Contact information

Daniel Lyons Bruce Hamilton


Telephone: +44 117 984 2748 Telephone: +971 4 5064 700
Email: dlyons@deloitte.co.uk Email: brucehamilton@deloitte.com

©2017 Deloitte Touche Tohmatsu.


Join us on 25 October at 12.00 BST/
13.00 CEST as our
Indirect Tax series presents:

European Commission’s Proposed


VAT Reform
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©2017 Deloitte Touche Tohmatsu.
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