The treaty is sometimes called a framework agreement, and it is a good name, it defines the “wire framework” for a collaborative VAT system between gcc countries. It should be remembered, however, that this is a treaty and not a law and is therefore essentially an agreement between countries. It is not a document that taxpayers can count on per se – you have to look at local implementing laws to develop the exact mechanics of VAT in each country. At the time of the letter, only the Saudi draft of the VAT Act (which is itself essentially a framework document in which it is not rated at zero or exempt from the contract) is available, but details are emerging. In the meantime, the treaty provides important guidance on how we can expect the VAT system to work. The Single Agreement on VAT (VAT) of the Cooperation Council for Gulf Arab StatesThe Cooperation Council`s single VAT agreement for gulf Arab States was published by UM AL-QURA, number 4667, H1438/7/24. This agreement aims to define the uniform legal framework for the introduction of VAT in GCC countries, which is imposed on deliveries of goods and services. The kingdom agreed by royal decree (point m/51 of 5.05.1438). Countries also enjoy great flexibility in the treatment of certain other important sectors – government agencies, event organisers (under international agreements), farmers and fishermen who are not registered for VAT and citizens who build their homes.
Countries have flexibility in applying VAT to these groups – they can either refund VAT or exclude them from paying taxes on deliveries delivered to them. The United Arab Emirates has confirmed that it will only accept refunds, and only in the case of certain public bodies, qualified event organizers and citizens who build their own homes. However, deliveries to these agencies in the United Arab Emirates are taxed in accordance with normal VAT rules and VAT is payable. It is not clear what other countries will do, but there is a possibility of differential processing of deliveries to these facilities, which are entirely based on the status of the recipient – it is potentially quite complex. VAT must be taken into account when drafting contracts. A contract can only be an agreement between the people who sign it. However, there is often another part: HMRC. © 2019 Euromoney Institutional Investor PLC. For help, please read our FAQ. The food, oil and gas sectors are also sectors where countries have a choice, although more limited – they can be either zero or rated by default for products. In the case of foodstuffs, there is a (non-public) list of nearly 100 items, which are mainly food, not prepared foods.
If a country chooses this treatment, it can only do so for the products on the list. Again, the United Arab Emirates confirmed that VAT on fuel at the pump was payable and that it would not be a zero-rate power supply. The other countries have not confirmed their plans. This uniform agreement of the VAT Cooperation Council for the Gulf Arab States must be transposed into national law in all GCC Member States, as such a KSA VAT law and draft implementing regulations have been drawn up. First, the treaty defines what might be called a “normal” VAT system. This means that it contains all the normal rules you might find in a conventional VAT system – the pre-tax credit system, the place of delivery and the time of deliveries. Anyone who is aware of VAT can therefore predict the nuclear mechanics of the system, and it is likely that they will be right. Countries will have the flexibility as to whether financial services should be exempt or taxable. In the United Arab Emirates, too, we know that the exemption will only apply to margin-based products (such as interest, etc.).