Is your business ready for VAT in the GCC?

All Gulf Cooperation Council (GCC) countries have now signed the Unified Value Added Tax (VAT) Agreement. The framework forms the basis for the national legislation to be introduced in each GCC country, which will be made public shortly.

Whilst details remain thin on the ground, VAT is expected to be introduced in the GCC countries with effect from January 2018. Saudi Arabia’s tax authority has announced it will introduce VAT from 1 January 2018 as will UAE.

We understand that the standard VAT rate will be 5% whilst there will be certain zero-rates and exemptions. 

According to a survey undertaken by Hays, 52% of UAE-based businesses say they do not have a VAT implementation strategy in place for the January 2018 deadline and 60% have not assigned a budget for the change.

The introduction of VAT is not just a financial issue and businesses need to understand the commercial implications of VAT which include the potential impact on profit margins and cash flow as well as additional administrative requirements and costs.

Preparation for the changes required is essential and time is quickly running out. Businesses should be looking at:
 
  • taking a strategic decision on whether to raise prices or hold prices for a while and absorb some or all of the VAT in order to gain market share;
  • review existing contracts to determine who will absorb the VAT cost.
Businesses which are not ready may well incur substantial financial penalties and potential suspension of business if they cannot comply with the tax authorities’ requirements.

If you would like further information on the above, please contact Terri Bruce.

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