GCC VAT Treaty – An Introduction

GCC countries including Saudi Arabia, Oman, UAE, Qatar, Bahrain and Kuwait came together and drafted a landmark Value Added Tax treaty to be followed among them. Treaty also can be termed as a framework of agreement. It is the base for the domestic tax legislation in each member countries. The treaty constituted of basic principles for every state to follow when VAT legislation is conducted. Hence, it is a document and not a law. When this article is written, Saudi Arabia and UAE have started VAT regimes in their countries. They implemented VAT from January 1, 2018. They have conducted domestic VAT legislation as per the GCC VAT treaty. The treaty provides the basic function of VAT in all the member countries.

GCC VAT treaty provides all the functions of traditional VAT system. One might wonder whether the GCC VAT is more similar to EU VAT or newer versions followed by countries like Singapore or New Zealand. Commentators and financial experts find similarities to both EU and modern VAT system. GCC VAT is moderately simple and broad based. In order to better the foreseeable future, GCC has kept low rate of VAT rate and it is 5%.

Another specialty of GCC treaty is that it allows countries to legislate on VAT provisions locally. Therefore, the treaty is highly flexible. The VAT implementation will provide extra income for the governments in these countries. The strategy of diversification followed by these countries will be aided by the treaty and in future they will become less depended on oil and hydrocarbon revenues as sources of income. VAT will establish a link between the government and citizens, adding a level of accountability in fiscal management. Businesses in these regions can be VAT ready with the help of VAT ERP software available online. GCC VAT ERP software aides every business in this region to be VAT ready.