Three out of the six Gulf Cooperation Council (GCC) states have now implemented VAT, with the remaining three due to follow by 2022.
Oman has recently confirmed that it will introduce a VAT system aligned with the GCC VAT framework with effect from April 2021. Oman will introduce VAT at a standard rate of 5% with limited zero ratings, but the highest number of VAT exemptions that we have seen so far in the region.
The United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA) and Bahrain have all implemented VAT since signing the GCC VAT Framework in 2016. For the remaining states, there has been much debate over the most suitable timing for implementation taking into account the stability and strength of the domestic economy, trade, employment and other factors.
The current position in each of the states that have not yet introduced VAT is as follows:
VAT in Qatar
While there have been no official announcements recently by Qatar in relation to the implementation of VAT, the state is currently expected to implement VAT in the second or third quarter of 2021.
The government and independent financial zone authorities continue to make progress with their regulatory legislative drafting. Qatar’s General Tax Authority (GTA) is also continuing with its ongoing preparations including the introduction of the state’s new tax administration system, Dhareeba.
VAT in Oman
Oman is set to be the fourth GCC state to implement VAT since the signing of the GCC VAT Agreement at the end of 2016, with an effective date of 16 April 2021.
Early preparation will allow businesses to avoid increased external implementation costs at premium rates due to late engagement, as well as pressure on internal teams to complete VAT preparations in a tight timeframe.
The Oman VAT Law was published in the official gazette on 18 October, according to Royal Decree No. 121/2020 issued by the Sultan of Oman on 12 October. This triggered a 180-day countdown to the effective date of 16 April 2021.
Oman's VAT Regulations are expected to be issued in December 2020, and should provide more granular detail covering the interpretation and application of the law including the VAT period length, VAT invoice content, place of supply rules, zero ratings and exemptions. See our detailed analysis of the Oman VAT Law for more information.
VAT in Kuwait
The Kuwait parliament’s support for tax reform appears to be somewhat lacking. However, it is still expected to implement VAT by 2022, according to a March 2020 report by the International Monetary Fund (IMF) - making it possibly the last of the GCC states to do so.
Should businesses be preparing for VAT implementation?
Businesses in the three states may generally feel that a formal implementation date must be announced before they commit any budget or resources to preparations for the new VAT regime, such as a change management plan. However, those in the region who have already been through VAT implementation would advise otherwise.
It is clear that revenue raising through taxes, including VAT, is firmly on states’ agendas given the immense pressures on local fiscal stability as a result of the Covid-19 pandemic and the oil price dip. This is reflected in the IMF Executive Board’s Article IV 2019-20 annual consultations for Qatar, Oman and Kuwait, together with publicly available state level financial plans.
Many government groups and international businesses have already begun their VAT readiness assessments for Oman and Qatar. Early preparation will allow them to avoid increased external implementation costs at premium rates due to late engagement, as well as pressure on internal teams to complete VAT preparations in a tight timeframe. Avoiding penalties for non-compliance is also seen as critical, given the high volume and significant value of tax penalties we have seen applied by tax authorities in states where VAT already applies.
Up-front strategic planning will be key to a successful VAT governance model, minimising time taken to implement as well as associated costs. This will include:
- setting a benchmark risk aversion level;
- identifying the need for internal resourcing and external tax professional support;
- choosing preferred systems and automation; and
- updating business procedures, process and controls to cover VAT.
Senior management of the business should have GCC VAT governance on their agenda for the region so that early decisions, to which the VAT implementation change management project should be aligned, may be taken from a strategic perspective.
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