VAT (Value Added Tax) on stacks of gold coinsThe six members of the Gulf Cooperation Council (GCC) – UAE, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman – agreed in 2016 to introduce VAT as a means to diversify government revenue sources and reduce reliance on crude oil exports after oil prices made a sharp drop in mid-2014.

The framework agreement on the introduction of VAT in the region was ratified in July by Saudi Arabia and the UAE and is expected to be signed by the other four GCC states later this year. The framework will form the basis for the national legislation which each member state of the GCC will use to establish their own separate national legislation concerning VAT. GCC countries have from January 1 2018 to January 1 2019 to implement VAT.

The UAE has previously stated that it might take up to 12 months for all GCC countries to implement VAT. So while the UAE set January 2018 as a starting date, countries like Bahrain announced that it is expected to apply VAT by mid-2018.

However, just a few days ago, on 10 August 2017, lawmakers in Kuwait rejected the VAT Bill passed recently by the GCC Council of Ministers, indicating they will not follow other GCC countries as the bill will negatively affect their citizens. With this unfolding, it is unclear as to how long this delay will last. Other members continue to press on with their implementation of VAT.

From a Dubai-based law firm point of view, UAE-specific tax advice is something that is still developing, with the Tax Procedure Law and Executive Regulations yet to be published in the Official Gazette.

However, VAT is an international tax and the basic mechanics are the same all over the world. Companies will need to consider the impact of VAT on their day-to-day running. This includes reviewing existing contracts to determine whether they allow for VAT to be charged and to consider VAT in relation to contracts which are currently being negotiated. In addition, there will be special rules for VAT transactions between the GCC countries. Ignoring the issue will simply not suffice, as businesses will be penalised if they fail to collect VAT taxes.

A number of Dubai-based international law firms have pre-empted the need for advice by recruiting or relocating Tax specialists into the UAE offices. If you are a Partner considering a move out to the region, or a Partner already in the region who is looking to have a confidential discussion about the market, feel free to contact me on +44 207 400 2048 or email me at zahrahs@ejgroup.co.uk

For more information on working in the region, please see our earlier posts Living and Working as a Lawyer in the Middle East and The Ongoing Allure of the Middle East.