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Saudi Arabia Publishes GCC VAT Agreement

On 20 April 2017, Saudi Arabia published the Gulf Cooperation Council (GCC) Unified Agreement for Value Added Tax (VAT) as approved by the Cabinet in January 2017. The agreement sets out the framework for the introduction of VAT as agreed to by all GCC States, while providing some flexibility for local implementation. Key points of the agreement include:

  • The standard VAT rate for the supply of goods and services is 5%;
  • The standard VAT registration threshold is annual turnover of USD 100,000 (SAR 375,000), while suppliers meeting at least 50% of the threshold may voluntarily register;
  • Suppliers will be allowed to recover input VAT;
  • Each GCC State will determine the methods and conditions for VAT refunds and/or carry forward to future periods;
  • Each GCC State is allowed to determine the VAT period (minimum one month), the applicable group treatment (if any), and the required content of invoices and issuance deadlines;
  • Each GCC State has the option to zero-rate or exempt the following sectors:
    • Education;
    • Healthcare;
    • Real estate; and
    • Local transport
  • Each GCC State has the option to zero-rate the following supplies with conditions set by each Sate:
    • Essential food products, such as milk, bread, etc.;
    • Oil, oil derivatives, and gas;
    • Medical equipment and medicines;
  • The following supplies are zero-rated:
    • Intra-GCC and international transport of goods and passengers (including associated ancillary services);
    • The export of goods to outside the GCC territory; and
    • The supply of goods placed under suspension arrangements as per GCC Common Customs Law.
  • Each GCC State may exempt financial services or determine other VAT treatment; and
  • The reverse charge mechanism will apply for the supply of goods or services in a GCC State when provided by a non-resident supplier (recipient accounts for VAT due).

Each GCC State is to implement VAT for 2018, although to date, only Saudi Arabia and the United Arab Emirates have indicated a 1 January 2018 effective date. The other GCC States include Bahrain, Kuwait, Oman, and Qatar.

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