Saudi Arabia, UAE readying to introduce new VAT system by 2018

According to media reports, all six Gulf Cooperation Council (GCC) countries, including Saudi Arabia, the UAE, Kuwait, Oman, Qatar and Bahrain, have reached a consensus to introduce a five percent VAT on a wide range of goods and services, in an attempt to diversify revenue sources in the wake of the low oil price.

Saudi Arabia and the United Arab Emirates will start imposing 5% VAT starting from January 1, 2018 while the rest of the GCC countries are yet to determine a firm date despite their commitment with the implementation.

Exporters based in Saudi Arabia and the United Arab Emirates will be required to pay value-added tax (VAT) on goods transported between the two countries from next year, with the tax collected in the country where the products are exported to, as media sources suggest.

According to the VAT laws introduced in both markets, only exports to the non-implementing GCC states will be eligible for the zero rating applied to exports, which will allow businesses to reclaim VAT paid on input costs. Other exports delivered within the GCC’s VAT-implementing states will be subject to VAT at its standard rate.

Players in the petrochemical industry are evaluating the planned VAT system amid expectations of a possible boost in demand ahead of the year-end as they believe that demand will falter following the implementation of the new tariff due to the higher prices.

Players in Saudi Arabia are confused about the new VAT system and they are waiting to see the impact of the new system on the market. Prices are expected to increase on the back of 5% VAT, which confuses traders about their cost calculations and margins.