Another GCC member state signs up to VAT

Qatar has become the second Gulf Cooperation Council (GCC) member state to formally endorse the GCC Value Added Tax (VAT) Framework, effectively bringing the six-member bloc a step closer to implementing the new tax tariff next year.

It comes less than two weeks after Saudi Arabia officially ratified the VAT Framework and formally declared its intention to introduce VAT on specified goods and services with effect from January 1, 2018. The Sultanate of Oman, for its part, is already making significant headway in the preparing the groundwork for the implementation of VAT as part of a raft of measures adopted by the government to help shore up revenues to offset a sharp decline in earnings from cheaper oil exports.

In an advisory to its clients, well-known professional services firm EY said: “EY understands that the government is committed to implementing VAT in Qatar with effect from 1 January 2018. With the enactment of the VAT law the Qatar Tax Authority is likely to commence active engagement with business groups on the imperative to be ready for VAT in 2018.

It is advisable for businesses operating in Qatar to take immediate steps to become compliant with the respective GCC member states VAT laws.”

As agreed by the Gulf states, the standard rate of VAT across the bloc will be five per cent unless a zero rate or exemption applies. However, member states have the prerogative of affixing a zero rate or an exemption altogether to the following four sectors: Education, Health Real Estate, and Local Transport, according to EY.

Similar discretion is also granted to individual states in setting a zero rate of VAT on certain foodstuff, medical supplies, and intra-GCC and international transport.

As for financial services, member states have the discretion to exempt this sector from VAT, although some caveats apply. EY explained, “The term financial services is not defined but broadly the exemption will generally relate to dealings in money, securities, foreign exchange and the operation and management of loan accounts, deposits, trade credit facilities and related intermediary services. The exemption is not expected to extend to fee based services transacted by a financial institution. However, Member States may choose to apply different VAT treatments to financial services if they wish,” the consultancy firm stated in its alert.

EY also urged businesses across the GCC, including Oman, to take immediate measures to prepare for the looming rollout of VAT. “A critical step in achieving compliance with the VAT regulation by 1 January 2018 is to commence a study to assess the impact on the business activities, processes, IT system and overall organization immediately in order to determine the impact that VAT will have across their operations. This assessment should consider the impact of VAT on the following key areas: Finance and Accounting, IT and systems, Tax and compliance, Supply chain — goods and services, Contracts, Sales and marketing, Legal structure, and Human resources.”

“The impact assessment should be used to develop a clear plan as to the steps that must be taken to be ready for VAT by the go-live date of January 1, 2018,” the firm added.