Know your VAT
Here are the latest developments of GCC VAT. Join us as more information becomes available.
A number of developments have happened in individual countries in the GCC in preparation for VAT.
VAT law–Saudi Arabia:
- KSA has become the first GCC country to publish its bilingual draft VAT law, following the publication of the GCC VAT framework agreement in the Official Gazette on 21 April, 2017.
- The draft VAT law will be supplemented by executive regulations, which are expected to provide more detail on the VAT treatment of specific goods and industry sectors.
Source: The General Authority for Zakat and Tax in Saudi Arabia
- In early June this year, the Federal National Council (FNC) approved changes to a draft law that serves as a framework for issuing tax-related laws–The Tax Procedure Bill.
- The Bill regulates the procedure of assessing, collecting and controlling public revenue it applies to. It also sets out the rights and obligations of taxpayers, registration of taxpayers, tax offences and violations.
- The Bill applies to fines, interest on the basis of due but unpaid tax, and the costs of the enforced collection.
- The Bill confirm the decisions issued by a dispute resolution committee, on cases where the value does not exceed AED 100,000, are final, and that federal courts will have jurisdiction to decide on other cases.
Source: The Federal National Council
- The UAE Federal Tax Authority (FTA) has announced a selective tax of 100 per cent on tobacco and energy drinks, and 50 per cent tax on carbonated beverages, to be applied in the fourth quarter of 2017.
- From mid-June the Saudi government announced implementation of a selective tax that includes products that are harmful to health, primarily tobacco, energy drinks and sodas. The price of a pack of cigarettes in Saudi Arabia doubled from 11 June 2017.
Source: Media reports
- It is likely that life insurance will be subject to a zero rate of VAT–insurers will be unable to charge VAT on the provision of life insurance contracts, or reclaim input VAT. VAT regulations will hot these insurers the hardest.
- Medical insurance is expected to be exempt from VAT.
- VAT is likely to increase the cost of doing business for GCC insurers because VAT will apply to almost all goods and services in the value chain, including outsourced services.
- Where a company has taxable and tax-exempt services, they will be classed as partially exempt–they will only be able to claim input VAT on shared overheads in proportion to the amount of taxable services offered.
- The introduction of VAT could impact cash flow in the short term and increase the claims ratio in the short-to-medium term. A one-off adjustment could therefore be made to underwriting approaches once VAT is implemented.
- Should Takaful operators be subject to the same VAT legislation, they will be hardest hit given the way they recognise profit. A specific implementation that recognises profit is generated and recognised differently in Shari’ah-compliant contracts is needed to insure the industry is not subject to a double hit.
Source: A.M. Best Market Review
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