VAT introduced to GCC member countries | KPMG PREVA

VAT in GCC

GCC is the abbreviated form of Gulf Cooperation Council. It is a union of six countries out of which five are recognized to be of Lower Gulf (respectively)- United Arab Emirates (UAE), Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. GCC agreements typically focus on either security or economic coordination among these countries.

These countries are some of the fastest-growing economies in the world, mostly due to a boom in oil and natural gas revenues coupled with a building and investment boom backed by decades of saved petroleum revenues.

What is VAT?

VAT

Value added tax It is a type of indirect tax levied on goods and services for value added at every point of production or distribution cycle, starting from raw materials procurement and going all the way to the final retail purchase.

Example: Farisha Electronics is an unregistered business in Saudi Arabia. The business incurs VAT on various electronics it purchases for resale to consumers as well as general business expenses such as office purchases, professional fees, car hire, etc.

Since Farisha Electronics is unregistered, the VAT paid on these purchases and expenses becomes a cost to the business. On the contrary, if Farisha Electronics obtains a VAT registration, they are eligible to recover the VAT paid on business purchases and expenses.

The provision to recover tax paid on purchases ensures that the business can pass on the credit of VAT and avoid double taxation in a supply chain. This becomes an important factor when other businesses decide to supply to or buy from the business.

If any business in the supply chain is an unregistered dealer, it leads to a rise in the price of the product and consequently, results in higher prices for the end consumer, as compared to a supply chain consisting of registered dealers. Hence, being VAT registered is necessary for businesses to ensure that registered businesses want to deal with them.

We have solution for all your worries and woes KPMG PREVA is the best Online Bookkeeping Tool for all your accounting hassles

Visit https://kpmg-preva.com/

When was VAT introduced to GCC member countries?

In June 2016, all the countries in the Gulf Cooperation Council (GCC) 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 to every supply of a good or a service provided in the course of business. There is no 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.

Even though VAT was introduced in 2016 to GCC not all the countries have implemented it.

Let’s discuss the countries who have triumphed in enforcing it.

Saudi Arabia and UAE were successful in implementing VAT policies However, The main reason behind implementing policies was not to focus on foreign suppliers of digital services to consumers in these GCC Member States but rather to promote and encourage local companies.

Sales thresholds have increased but only for the local companies, foreign suppliers of digital services are yet to benefit from it.

Get the best Online Accounting Tool at https://kpmg-preva.com/

Source URL : https://kpmgpreva.medium.com/when-was-vat-introduced-to-gcc-member-countries-kpmg-preva-2c630a312333