VAT Principles

What is GCC VAT Agreement ?

The GCC VAT agreement can be defined as the Unified Agreement for Value Added Tax by the Gulf cooperation council (GCC) for the Arab states. The UAE and Saudi Arabia will be the first countries to roll out VAT in the GCC from Jan 2018 while other gulf countries have time until the end of next year to implement the tax system. However, Excise Tax is considered for implementation in the fourth quarter of 2017 in UAE. Hence, businesses in UAE, Saudi Arabia, and other gulf countries are now preparing to adopt the value-added tax system.

Key Features of GCC VAT Agreement

The VAT and Excise Tax treaties formed under the GCC VAT agreement means the basis for each country’s individual VAT and Excise Tax mechanism. Each member country is to issue its own national legislation for VAT using the commonly agreed principles as guidelines.

The key features of GCC VAT Agreement are:

  • Businesses with annual revenue of over AED 375,000 ( US $ 100,000) will be required to register for VAT purposes.
  • Businesses with annual revenue between AED 187,500 ( US $ 50,000) and AED 375,000 will have the option to register for VAT purposes.
  • The standard VAT rate will be 5% unless a zero rate or exemption applies.
  • Individual GCC countries have the right to subject certain food products to a zero rate of VAT.
  • The Member States have the right to subject the following sectors to a zero rate or to exempt them from VAT:

a) Education
b) Health
c) Real Estate
d) Local Transport

  • The Member States have the right to subject the oil sector, petroleum derivatives, gas and medical supplies to a zero rate of VAT.
  • Intra-GCC and international transport will be subject to a zero rate of VAT.
  • The export of goods to jurisdictions outside of the GCC Member States will be subject to a zero rate of VAT.
  • The Member States have the right to exempt financial services from VAT. This is not defined but would broadly constitute of dealings in money, securities, foreign exchange and the operation and management of loan accounts, deposits, trade credit facilities and related intermediary services. Fee based services transacted by a financial institution are not exempt. However, Member States may choose to apply a different VAT treatment to financial services.
  • Supplies of goods and services from a VAT registered person in one Member State to a VAT registered person in another Member State are subject to the reverse charge mechanism.
  • Two or more legal persons resident in the same Member State can apply for a VAT group.
  • Each Member State should determine the VAT treatment for free zones.

VAT Rates in GCC Countries :

The VAT mechanism in Dubai and other GCC countries would be categorized under three different type of tax rates.

1. Standard rates at 5%

2. Zero rated products at 0%

3. Exempted products

Contact JCA UAE Audit for GCC VAT Agreement in Dubai, UAE, for more information, Inquire us today.