GCC countries have other opportunities related to very important aspects of the VAT system. Each country can choose to allow VAT groups (budget consolidation of related companies) and margins for used goods. Here too, we know the United Arab Emirates and Saudi plans to allow VAT groups for domestic companies and the use of the used system. The treaty also provides for transitional provisions on the introduction of VAT, but does not particularly concern grandfather rules for existing contracts – so each country has flexibility in this area. We know that the UAE will have grandfather rules that allow VAT to be collected in situations where the customer can deduct VAT, but we do not know what other countries are planning to do. The VAT mechanism in Dubai and other GCC countries would be classified according to three different tax rates. The food, oil and gas sectors are also sectors where countries have a choice, although more limited – they can be either zero or rated by default for products. In the case of foodstuffs, there is a (non-public) list of nearly 100 items, which are mainly food, not prepared foods. If a country chooses this treatment, it can only do so for the products on the list. Again, the United Arab Emirates confirmed that VAT on fuel at the pump was payable and that it would not be a zero-rate power supply. The other countries have not confirmed their plans.
The treaty shows that countries are not always able to agree on the same rules. So there is a lot of flexibility for countries to change local regulations. In some cases, this is only due to the lack of comments, but in many cases this flexibility is self-explanatory. Similar opportunities are available for real estate, education and health. In these cases, countries can choose between taxes, tax exemptions and zero rating. Again, at the time of the letter, we really only know what the United Arab Emirates is planning to do in this regard (zero for most health and educational institutions, with a mixture of zero rating and exemption in housing and taxation of commercial buildings). In the area of health, the treaty requires countries to zero certain medicines and medical devices, but this list is based on a list that has yet to be agreed and is therefore not available at this time. Although it is not clear when the GCC as a whole will have an effective VAT regime, the future application of VAT in the other three GCC countries should be taken into account in the review and (new) negotiation of delivery contracts (of goods or services) within the region. Contracts should include appropriate tax clauses and reflect (economic) reality.
Saudi Arabia definitively approved the single agreement of the Gulf Cooperation Council (GCC) on the introduction of VAT on 30 January 2017, followed by an announcement by Bahrain`s finance minister, who confirmed that Bahrain had signed the agreement on 1 February 2017. The six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) have all signed the agreement, paving the way for the introduction of VAT throughout the Gulf Cooperation Council in 2018. The next steps are for local enforcement laws to be adopted in each country. The VAT agreements concluded under the GCC VAT agreement and excise duties are the basis of each country`s individual VAT and excise scheme.