GCC Indirect Tax Weekly Digest
July 7, 2020
VAT rate increase takes effect from 1 July 2020
The Kingdom of Saudi Arabia (KSA) decision to increase the Value Added Tax (VAT) from 5% to 15% took effect on Wednesday 1 July 2020.
The General Authority of Zakat and Tax (GAZT) encouraged taxpayers to understand and correctly implement the new provisions, and in particular to be aware of transitional provisions and other practical information surrounding the rate change in the recently issued guidelines. For information about the transitional provisions applicable to existing contracts and suggested action, please refer to our alert.
In addition, GAZT has extended some of its transitional COVID 19 reliefs which were initiated last March, including the ability to self-account for import VAT through the VAT return which will help to relieve the higher import VAT burden on a number of taxpayers.
UAE amends the VAT Executive Regulations
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published an updated version of the Executive Regulations to the Federal Decree Law No. 8 of 2017 on Value Added Tax (VAT), on its website.
This version includes updates made through Cabinet Decision No. 46 of 2020, however, the specific Cabinet Decision has not been published separately. The main update includes a change made in Article 31(2) on the Export of Services rules. The Article now reads:
“For the purpose of paragraph (a) of Clause 1 of this Article, a Person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply”.
In the updated article above, the word “AND” replaces the word “OR” and thus requires both conditions included in this Article to be met in order for a supply of services made to non-resident persons to be zero-rated for VAT purposes.
This change to Article 31(2) appears to direct that supplies made to overseas businesses which have a fixed establishment in the UAE, such as a branch or representative office, are within the scope of UAE VAT and there are limited circumstances where zero-rating is applicable.
Given the change has been made to the Executive Regulations by way of a Cabinet Decision, this is a change to the existing legislation which is expected to have prospective effect, however, the FTA’s interpretation of the effective date of this change has not been confirmed.
Businesses should assess the implications of this change and undertake a review of all contracts on which the zero-rate has been applied to exported services in order to determine whether this warrants any changes to the VAT treatment applied to date.
Excise or Selective Tax on alcohol
The Minister of Finance in the Sultanate of Oman confirmed that effective 1 July 2020, 100% of Excise or Selective Tax rates on alcohol products will be reinstated.
Oman introduced Excise Tax on 15 June 2019 on five products (carbonated drinks, energy drinks, tobacco, alcohol and pork). At that time, the Excise Tax rate on alcohol products was reduced from 100% to 50% as a transitional measure.
With this increase, businesses dealing with alcohol products in Oman must file a transitional returns on stock on hand effective 1 July 2020. The applicable differential tax must be settled within a period of 15 days from the date the new rate has come into effect.
This rate reversion on alcoholic products is separate and in addition to the recent announcement for sweetened drinks, which is effective from 1 October 2020 at the rate of 50%. Please refer to our previous Digest or our separate alert for more details.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.